08.26.24

Banks Likely ‘End Game’ for Repo Market as Treasury Supply Grows

by: Alex Harris

Banks will have a larger footprint in the market for repurchase agreements as U.S. Treasury coupon bond issuance jumps and demand for financing grows in the coming years. The supply of new Treasury coupons is expected to rise by more than $3 trillion in the next two years, which means the financial industry will need to find another $200 billion to $400 billion of additional repo, according to Citigroup Inc. strategist Jason Williams, in a note dated Aug. 23. With balances at the Federal Reserve’s overnight reverse repo facility potentially close to being drained, actual bank participation in the market is more critical, he noted. That is becoming all the more critical for market participants who rely on the repo market for real-time indications of stress as the Fed gets closer to the end of its balance-sheet unwind. Banks will “eventually become the end game as the marginal cash lender in repo markets,” Williams wrote.

Read the full article on Bloomberg