Reverse Repo
The Fed's tool for absorbing excess reserves from money markets — the counterparty sells Treasuries to the Fed overnight, draining liquidity from the system.
A reverse repurchase agreement (reverse repo or RRP) is the mirror image of repo. The Fed sells securities to counterparties (money market funds, banks) overnight and agrees to repurchase them the next day at a slightly higher price, paying the overnight RRP rate.
The Fed's Overnight Reverse Repo Facility (ON RRP) sets a floor under short-term rates by providing a risk-free overnight investment for money market funds. Post-QE, the facility ballooned to over $2.5 trillion as excess reserves flooded the system with nowhere to go.
Declining RRP balances are watched as a liquidity gauge — as money leaves the facility to fund Treasury bill purchases or other investments, it signals tightening conditions in short-term funding markets.
Related Terms
Federal Funds Rate
The overnight interest rate at which U.S. banks lend reserve balances to each other — the primary policy rate the Fed targets to steer the economy.
IntermediateIORB
The rate the Fed pays banks on reserves held at the Fed — its primary administered tool for steering the fed funds rate within target.
AdvancedQuantitative Easing
A Fed policy of purchasing Treasury bonds and MBS to inject liquidity, lower long-term yields, and stimulate the economy when short rates are near zero.
IntermediateQuantitative Tightening
The Fed's policy of shrinking its balance sheet by allowing bonds to mature without reinvesting the proceeds — the reverse of QE.
AdvancedRepo
A repurchase agreement — a short-term (often overnight) collateralized loan where securities are sold and agreed to be repurchased, serving as the plumbing of money markets.
AdvancedSOFR
Secured Overnight Financing Rate — the benchmark short-term interest rate based on actual overnight Treasury repo transactions, replacing LIBOR.
Advanced