Accessible Version
Repo Markets and the Fed’s Balance Sheet: Implications for Monetary Policy Implementation, Accessible Data
Figure 1. Effect of Balance Sheet Decline on Repo Markets
This image shows the balance sheet changes for four financial entities during a quantitative tightening scenario:
Federal Reserve
- Assets: Treasury securities decreasing
- Liabilities: Reserves decreasing; Overnight Reverse Repo (ON RRP) approximately 0
Dealers
- Assets: Treasury securities increasing
- Liabilities: Repo increasing
MMF (Money Market Funds)
- Assets: Repo increasing; ON RRP approximately 0
- Liabilities: MMF deposits increasing
Banks
- Assets: Reserves decreasing
- Liabilities: Deposits decreasing
This diagram illustrates how Treasury securities move from the Fed's balance sheet to dealers, funded by repo agreements with MMFs, while bank reserves and deposits decline. The ON RRP facility is depleted, with balances near zero.
Figure 2: Effect of $50 billion Net Treasury Issuance on TGCR-IORB by Liquidity Level
| (Reserves + ON RRP)/GDP | Treasury security type | Coefficient | Standard Error | Confidence interval - upper bound | Confidence Interval - lower bound |
|---|---|---|---|---|---|
| 1. <10% | Coupon | 8.884842 | 1.41689915 | 11.66196433 | 6.107719666 |
| 2. <10% | Bills | 1.70415195 | 1.35965135 | 4.369068596 | -0.960764696 |
| 3. 10% | Coupon | 5.4523365 | 2.0343669 | 9.439695624 | 1.464977376 |
| 4. 10% | Bills | 2.37454455 | 1.38597665 | 5.091058784 | -0.341969684 |
| 5. 11% | coupon | 2.2219999 | 0.4516555 | 3.10724468 | 1.33675512 |
| 6. 11% | Bills | 1.59625355 | 0.45692604 | 2.491828588 | 0.700678512 |
| 7. 12% | Coupons | 2.37184595 | 0.43207803 | 3.218718889 | 1.524973011 |
| 8. 12% | Bills | 0.381141295 | 0.6891036 | 1.731784351 | -0.969501761 |
| 9. >12% | Coupons | 0.653739 | 0.15758518 | 0.962605953 | 0.344872047 |
| 10. >12% | Bills | 0.350212145 | 0.148470735 | 0.641214786 | 0.059209504 |
This figure shows the effect of $50 billion of net Treasury bill issuance or net Treasury coupon issuance on the TGCR-IORB spread for different levels of Federal Reserve liquidity (reserves plus ON RRP). The dots and triangles represent the regression coefficients and the bars represent the 95% confidence interval. Estimates are based on equation (1) for different liquidity levels, rounded to the closest percent. The regressions control for lagged changes in primary dealer Treasury security holdings, lagged changes in government MMF assets under management, and lagged changes in Federal Reserve liquidity. The sample is September 2014 to March 2026. Statistical significance: *** p ≤ .01, ** p ≤ .05, * p ≤ .10.
Sources: Board of Governors; Federal Reserve Bank of New York; Daily Treasury Statement; iMoneyNet, Inc., Money Fund Analyzer-Gold.