An unusual increase in short-term lending by cash-rich companies has raised fears on Wall Street that a period of turmoil is looming.

Investors such as money market funds and banks reserve more than $ 1 trillion in cash overnight at the Federal Reserve. This is the most recorded since the Fed opened its facility for these reverse repurchase agreements in 2013.

The scale of the moves has led some analysts to warn that short-term funding markets are vulnerable to disruption. The cause of the run this summer on the Fed’s repo facility appears to be the central bank‘s decision in June to increase the amount of interest it pays, from 0% to 0.05%, although use has already increased in the spring.

Repo agreements, or pensions, are the primary market mechanism for transferring cash from those who have it to those who need it. The Fed also uses them to influence short-term interest rates; The influx of reverse repurchase agreements means that banks and investors have additional liquidity and the Fed is sucking it.

A higher interest rate should attract more money, but analysts said they were surprised at how quickly companies have switched to reverse repurchases from other short-term investments such as bonds. treasury and commercial paper.


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