Overnight Reverse Repurchase Agreement Facility
a.k.a. ON RRP, Overnight reverse repo, RRP facility
A Fed facility where money market funds and others can park cash overnight and earn interest, setting a floor under short-term rates.
The Overnight Reverse Repurchase Agreement Facility (ON RRP) lets eligible firms, mostly money market funds, lend cash to the Fed overnight in exchange for Treasury bonds as collateral, then get it back with interest the next day. It is a reverse repo on an industrial scale.
Because the Fed pays a set rate, nobody has much reason to lend cash cheaper than that anywhere else, so it acts as a floor for short-term rates. Its balance swelled to over two trillion dollars after the pandemic flood of cash, then drained as conditions changed. Watchers track it as a gauge of spare liquidity in the system.
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