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Reverse Repos Collapse Continues: What $91B at the Fed Is Really Telling Us
Reason 1: The System Needs the Cash Now
Institutions may be:
Meeting margin calls
Plugging funding holes
Or simply hoarding cash in anticipation of trouble
Reason 2: There Aren't Enough Treasuries Left to Go Around
The Fed supplies Treasuries into the RRP in exchange for cash. If the system:
Is rehypothecating the same collateral over and over
Is desperate for short-term Treasuries for repo transactions
Is pulling high-quality collateral off-market to hoard or reuse...
Then institutions might not lend to the Fed—not because they don't have cash, but because they need those Treasuries elsewhere. They need to keep the "good stuff" inside the system—not lend it away overnight.
A collapsing RRP balance means one thing: either there's no cash to lend, or there's no Treasuries left to post. Either way—it's a liquidity warning shot.