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Fed Reverse Repo Use Hits $1.6 Trillion on Last Day of Quarter

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(Bloomberg) -- The amount of money that investors are parking at a major Federal Reserve facility climbed to yet another all-time high on the final trading day of the third quarter, just as anxiety is growing that the U.S. could breach its borrowing limit next month.

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Ninety-two participants on Thursday placed a total of $1.605 trillion at the Fed’s overnight reverse repurchase agreement facility, in which counterparties like money-market funds can place cash with the central bank. The previous record, set the day before, was $1.416 trillion. Thursday’s leap was the biggest one-day increase in usage since mid-June.

Usage of the facility has exploded as investors need somewhere to park their short-term cash and there is an imbalance in Treasury bill markets that’s been fueled in large part by a drawdown of the U.S. government cash balance and Federal Reserve asset purchases. Concerns around what effect a debt-ceiling breach might have could also be adding to demand along with quarter end effects in money markets.

“This should be the high water mark for RRP in the near-term even as usage continues to trend higher,” said TD strategist Gennadiy Goldberg. “A debt ceiling suspension by mid-October should push bill supply higher, which can help decrease RRP usage somewhat.”

(Updates with debt ceiling context in first paragraph.)

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