Source: Bloomberg

Alex Harris

The main overnight borrowing market transaction volume has soared to the highest in at least seven years, indicating that the Fed's tightness has increased pressure on the liquidity of the banking system.

The data released by the New York Fed on Monday shows that on January 27, the scale of federal funds borrowed a single -day loan rose to US $ 10 billion, which was higher than $ 113 billion in the previous trading day.This marks the highest level since the central bank has carried out the comprehensive reform of the data release in 2016.

Thanks to the large -scale currency stimulus and fiscal measures introduced during the epidemic, until recently, the funds have been sufficient.Now, as the Federal Reserve ’s interest rate hike increases, the tightening tightening has shifted to the alternatives of the currency market funds and other yields.

"The pace of interest rate hikes in the past 12 months is the fastest since the 1980s, so from a historical perspective, the tightening of financial conditions and the rise in financing costs are also extremely extreme," "Daoming Securities' high -level United States in New York in New YorkThe interest rate strategist Gennadiy Goldberg said, "Although this does not actually cause funds, due to the rapid rise in interest rates, a large amount of deposits have flowed out, which has made some banks busy."

The federal fund market's overnight non -guaranteed loan interest rate is one of the goals of the Fed's monetary policy decision -making.It is currently 4.33%, which is close to zero a year ago. Investors are expected to raise interest rates by 25 basis points again on Wednesday.

With the increase in financing pressure, the Fed's latest survey implies that banks may adopt strategies to make up for the lost funds.Financial institutions say that if the reserve rate has fallen to an uneasy level, they will borrow money in the unpaid financing market to raise a brokerage deposit or issue deposit bill.Most domestic banks also mentioned that "very likely" or "possibly" borrowed from the federal housing loan bank.

This shows that the driving force for the surge in the federal fund market may be that federal housing loan banks allocate more excess funds in the federal fund market, rather than an alternative option such as the repurchase agreement.

At the same time, in terms of borrowers, domestic banks' participation in the federal fund market is also increasing.Barclays said their borrowing in this market has soared from 5%in 2021 to 25%recently.

"Only when the daily liquidity buffer is too small, domestic banks will borrow on the federal fund market," Joseph ABATE wrote in the report on January 25, "Therefore, when the bank's reserve is abundant,The proportion of domestic banks in the borrowing of federal funds is very low. "

Nevertheless, the US dollar financing market has not been on the verge of collapse, and it is not as when the central bank's last quantitative tightening ended in 2019.At that time, the reserve was low to the point where financial institutions had no money in the market overnight.

However, looking forward to the future, analysts will pay attention to the use of discounted windows, repurchase agreement interest rates, and the issuance of federal housing loan banks. This may be a key indicator for displaying funds.

"Banks for funds are a good sign," said Rishi Mishra, an analyst of Futures FIRSTADA, said, "The Fed should be happy. Of course, everything is too late."