US Rates Watch: Fed RMPs: tweaking the funding dial

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US Rates Watch: Fed RMPs: tweaking the funding dial

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US Rates Watch

Fed RMPs: tweaking the funding dial

Funding too easy? Dial RMPs back 13 May 2026

The Fed surprised by announcing reserve management purchases (RMPs) of $10b/m. We Rates Research

& street expected $20b/m; we flagged risks of $15b/m (Exhibit 1). Takeaways: (1) Fed United States

saw funding as too easy (2) Fed will use RMPs to tweak funding conditions. US Rates Research

BofAS

Funding too easy: US funding is soft. May average: TGCR = IOR-5.7bps, SOFR = IOR - +1 646 855 8846

3.9bps (Exhibit 2). There has also been increasing, albeit small, use of Fed ON RRP Mark Cabana, CFA

($3.6b). RMP action today suggests conditions too easy for the Fed’s preferences. Rates Strategist BofAS

mark.cabana@bofa.com

The Fed has not specified ideal setting of money markets in the target range. We

Katie Craig

continue to overweight Dallas Fed President Logan’s guidance: TGCR = "on average, Rates Strategist

close to, but slightly below IOR". We do not know exactly how Logan defines "slightly BofAS katie.craig@bofa.com

below" but we have assumed it is TGCR 2-3bps below IOR. RMPs today support this. See Team Page for List of Analysts

Fed RMPs = funding dial: to achieve Logan’s ideal the Fed signaled today they will use

RMPs to fine tune funding conditions. We expected this, but it was not clear how RMPs = reserve management

sensitive Fed RMPs would be to prevailing market conditions. Today the Fed proved they purchases

will adjust RMPs to ensure funding is not too easy or too tight on month-to-month basis.

TGCR = tri-party general collateralImportantly, these decisions will likely be made with a 1m lag.

repo

Our analysis suggests the natural growth rate of Fed liabilities is ~$20b/m ($19b/m