Rate-Cut Hopes Raise Risk Of Reigniting Funding Stress

Authored by Simon White, Bloomberg macro strategist,

The recent drop in short-term rates has put pressure on the reverse repo facility at the Federal Reserve, potentially bringing nearer the time funding stress re-emerges, and when the Fed ends quantitative tightening.

The carry-trade unwind may have taken center-stage this week, but other ongoing potential sources of problems should not be neglected. One of which is the decline in the RRP, the domestic facility reaching a three-year low of $286 billion on Wednesday.