Reverse Repo Endgame
Reverse Repo is off of the charts. 1. For what reason would the banks need 1.2 trillion in collateral? 2. What does this signal in your mind as far as economic conditions?
I would think RRP as just investors depositing money at the Fed rather than a collateral issue.
Banks don't participate in the RRP, it's the the money market funds that are investing. MMFs don't need collateral, they just need a place to park their money that is safe. Usually they will invest in Treasury bills or private repo (a secured loan against Treasury collateral), but there is just so much money from QE that they run out of places to invest. So they deposit the money at the Fed in the form of RRP.
This is an expected side effect of massive QE. If you create $120b of deposits a month eventually there isn't any place to put it, so investors go to the RRP. I wouldn't read anything into it about economic fundamentals.