Why Is Reverse Repo Use So High? Focus On Collateral! 1
Skyrocketing use of the Fed’s Overnight (o/n) Reverse Repurchase Facility is more of an issue with collateral scarcity rather than bank reserves.
This comes down to US Treasuries’ status (especially T Bills) as the repo market’s preferred form of collateral. Which also means that changes in levels of demand for USTs will tell us if there really is an ongoing collateral shortage.