Suncor Energy Inc T.SU

Reverse repos/money market funds, TGA and liquidity

[Torontojay]

I've been monitoring the situation closely. The Fed pauses on rate hikes and now money will be exiting the reverse repo facility and filling the TGA account. 

There is about 2 trillion in reverse repos which is mostly money market funds and the government needs  $1 trillion of that.  The rate on a reverse repo at the Fed is 5.05% and the government has to pay a higher yield on t-bills to attract interest. The way this happens without draining any liquidity is for rrp's/money market funds to sell at the Fed and then buy government issued t-bills which offer higher yields. Nothing has changed from a liquidity point of view. 

It is interesting to note that the government is borrowing at the short end of the yield curve which is also the most expensive.  The advantage of doing this is to capitalize on the large reserve balance at the reverse repo facility. 

Jerome Powell has also confirmed this at the June meeting  regarding how the TGA account will get filled. 

The Fed certainly has a few tricks up their sleeves.

[Experienced]

Great info...thanks Jay Just a couple of side notes. 1...the current average interest rate on the US national Debt is about 2.67% so this new borrowing at current short term rates is close to double the interest rate on the rest of the debt!!...not good!! 2...the other thing about all is that having the US Government basically backstop the repo market by buying most of what is available is that

[Torontojay]

Good points Experienced.  No matter which way you go, you're s.o.l. It's like a payday loan borrower that has to keep borrowing just to service the interest expense on the debt they've borrowed. A perpetual cycle that just leaves everybody poorer.  These fiscal deficits in both Canada and the US are highly inflationary and it appears they are trying to inflate their

[mrbb]

biden and trudeau got elected because weak men wanted free stuffs from the gov'ts Democrat and liberal/NDP politicians are happy to provide that in return for power and control.  human history is rinse and repeat

[Experienced]

Jay - in answer to question, I have one answer....follow the money.  It is in the interests especially in the US for the super rich to decide who the people get to vote for in an election.  In the US it now takes a billion dollars to run a Presidential campaign!!  It is best for the rich to make sure that the person elected is bought and paid for and is also beholden to them.