STIR: Similar Rate Path To Pre-CPI Levels, Williams Watched For Fed Reaction

Bloomberg reports that primary dealers pushed back against Fed officials urging them to use a key borrowing facility at a meeting last week, complicating efforts to ease strains in the $12 trillion market for repurchase agreements. See the full report here. 

• They told the officials “that borrowing directly from the central bank still carries a stigma and could be seen as a sign of trouble. That’s one reason they’ve been reluctant to use the Standing Repo Facility (SRF), according to people familiar with the discussion, who asked for anonymity to discuss details of private conversations.”
• “Others pointed to operational and balance-sheet constraints that made it difficult to access the facility, which was set up by the Federal Reserve in 2021 to serve as a backstop in money markets."  
• The use of the facility has been rising although is off last month’s post-2020 highs on month-end pressures.
• NY Fed’s Williams said last week that the SRF “is best thought of as a way of making sure that the overall market has adequate liquidity consistent with the FOMC’s desired level of interest rates.” He added that “Like the ON RRP facility, the SRF’s effectiveness relies on market participants availing themselves of the SRF based on market conditions, free of worries about stigma or other impediments. I fully expect that the SRF will continue to be actively used in this way and contain upward pressures on money market rates.”
• As we noted at the time, SOMA Manager Perli also said re the decision to end QT that "Considered together, higher money market rates, increased SRF usage, and shifting reserve ampleness indicators are strong evidence that reserves are no longer abundant", though he also said "the estimated elasticity of the demand curve for reserves has thus far remained stable."

Note that gilt bears still haven’t filled the gap lower in 30-Year yields that came on October 14. The benchmark is now 27bp off month-to-date lows at 5.41% vs. session highs of 5.431%. They would have to push the benchmark to 5.463% to close the aforementioned gap.