An unusual surge of short-term lending by cash-rich companies is raising concerns on Wall Street that a period of market unrest may lie ahead.
Investors such as money-market funds and banks are parking over $1 trillion in spare cash overnight at the Federal Reserve in exchange for securities. That’s the most on record since the Fed opened the facility for so-called reverse repurchase agreements in 2013.
The scale of this flood has some analysts warning that the markets for short-term funding appear to be vulnerable to disruption.
The worry isn’t new. The Fed said in its last meeting it would establish two new permanent facilities to guarantee investor access to a related market known as repo, in which financial firms borrow cash using securities such as Treasury debt as collateral. The decision aims to brace markets against volatility that could hit when the central bank begins tightening financial conditions in coming years.
Short-term debt sits at the intersection of markets and the economy, and as such the functioning of these markets is central to the health of the U.S. recovery and the broad advance in prices of stocks, bonds and other assets.
