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Discussion Paper
Insights from MMF Portfolio Allocations amid Balance Sheet Normalization
In June of 2022, the Federal Reserve (Fed) began to reduce its securities holdings and decrease the size of its balance sheet, a process known as balance sheet runoff. The decline in the Fed's assets mechanically results in a decline in Fed liabilities, and on net since June 2022, most of the decline in securities holdings has been associated with a decline in use of the Fed's overnight reverse repurchase (ON RRP) facility, a facility in which eligible counterparties are able to enter into an overnight reverse repo agreement with the Fed, earning the ON RRP rate on funds held at the facility.
Discussion Paper
What Happens on Quarter-Ends in the Repo Market
Over the course of the past two years, repo rates have begun to rise modestly around quarter-ends and, to a lesser extent, on some month-ends. As seen in Figure 1, after some time of the Secured Overnight Financing Rate (SOFR) remaining below or near the Overnight Reverse Repurchase (ON RRP) rate and with no or very little movement around quarter-ends, SOFR rose 7 basis points above the ON RRP rate at the end of March 2023, when banks' demand for liquid assets increased following the collapse of Silicon Valley Bank, and has temporarily increased over each quarter-end since then.