US: FED Reverse Repo Operation

Canadian Prime Minister-designate Mark Carney has pledged to keep Canadian trade countermeasures in place, after US President Donald Trump's trade war escalation today.

• Carney said on X: "President Trump’s latest tariffs are an attack on Canadian workers, families, and businesses. My government will ensure our response has maximum impact in the US and minimal impact here in Canada, while supporting the workers impacted. My government will keep our tariffs on until the Americans show us respect and make credible, reliable commitments to free and fair trade."
• Conservative leader Pierre Poilievre indicated earlier that there is broad support across the political spectrum for a forceful Canadian response. Poilievre said in a lengthy statement on X, in response to Trump's metals tariff hike: "I am calling on the government to immediately bring in retaliatory tariffs to respond to this unjust act and to protect Canadian steel and aluminum workers. If President Trump is applying 50 percent tariffs on our steel and aluminum then Canada must hit back with 50 percent tariffs..."
• Poilievre added: "I am calling on Mark Carney to reverse his plan to impose a massive new industrial carbon tax on Canadian steel and all other heavy industry."
• Ontario Premier Doug Ford, whose surcharge on electricity sparked today's escalation, said: "Trump’s tariffs are causing chaos. Markets are tanking. He needs to drop his tariffs and come to the table to negotiate a fair trade deal. Until he does, we won’t back down."

Takeup of the Fed's overnight reverse repo facility continued to fluctuate Tuesday, rising $8.3B to $137.3B (after falling $7.3B prior and rising $7.0B two sessions ago).

• The rise is not unexpected, as we had flagged ON RRP takeup could rise in line with large Treasury bill paydowns Tuesday, and this keeps takeup in recent ranges.

The $58B 3Y auction was very solid despite a modest 0.6bp tail (high yield 3.908% vs when-Issued yield of 3.902% at auction cutoff).

• The tail was in-line with recent auctions (0.3bp average in previous 5 sales including January's strong 1.2bp trade-through), and came despite a lack of significant concession going into the auction.
• Dealer takeup was merely 11.5% of competitives, one the 5 lowest since at least the early 2000s and just slightly up from February's post-2023 low 10.2%.
• The bid-to-cover ratio likewise dipped slightly to 2.70x from February's post-2023 high 2.79x, but this was still the 2nd highest cover since 2023.
• Directs took 26.0% with indirects 62.5%.
• Short-end yields dipped slightly (2Y by 0.3bp) following the result.