Iorr: 0.1% (April) vs 1.1% (March)
Iorr fell significantly due to the US FED emergency rate cuts in March. The current FED rates range from 0%-0.25% which means that the max limit is 0.25%.
Effr: 0.04% (April) vs 1.59% (March)
Effr fell significantly due to the US FED emergency rate cuts in March.
Ioer: 0.1% (April) vs 1.1% (March)
Ioer fell significantly due to the US FED emergency rate cuts in March.
On RRP: 0% (April) vs 1.5% (March)
Min limit is 0% as set by the US FED.
The reverse repo programme involves the FED (seller) selling the 1-day debts (backed by treasury & MBS) to the investors (Buyers). The FED is paying an interest rate of 0% for the 3-day reverse repo now which is very unattractive as 1-day RR is unavailable.
The repo market involves the FED (buyer) buying 1-day debts (backed by treasury & MBS) from the sellers. The sellers are paying 0.1% interest rate (3-day repo) now which means they are getting cheap short-term loans from the FED.
3-day repo:
84-day repo: No taker!
The repo market has stabilized because nobody wants to sell 84-day debts to the US FED.
Effr: 0.04%
Ioer: 0.1%
When the Effr (0.04%) is lesser than the Ioer (0.1%), it becomes a monetary easing situation because the US FED banks are unwilling to loan to one another. Correspondingly, the US FED banks will have lesser money to use to buy the US Treasuries. However, there will be more money available for commercial markets like the mortgage and commercial loans since the US FED banks have excess cash available.
We can see from the falling US rates that the US is trying to increase its money supply with cheap loans due to the covid-19 outbreak.
The question now is whether the US will cut its rates below Zero in April.
The repo market is showing that the investors don't need cheap loans when the economy is under lockdown. Therefore, it is pointless to reduce the US FED rates when the economy is under lockdown.
I would prefer the US FED to put the interest rates on hold since the economy is under lockdown and use other stimulative funding programmes to salvage the US economy. It is a tough call this April unless the US government is adamant in reopening its economy soon.
If the US FED did cut its rates to negative, it would symbolize this April cut as a psychological move and mean that it wanted to reopen its economy in May. However, I would classify this as a dumb move.
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