2/ The US Treasury is thinking about supplying the market with more short term T-bills to alleviate a shortage.
3/ Money Market Funds like short term T-bills, but there ain't enough so they park their money in the Fed's reverse repo facility. It earns a similar yield. Credit risk is also a factor, but let's keep this simple for twitter.
4/ Money in RRPs is dead money that cannot be leveraged by the banking system. Money in T-bills is ALIVE and can be leveraged to pamp risky financial assets.
5/ There is 2.2 trillion sitting in RRP, if that number goes down BOOM BABY BOOM! Let's Fucking Go, Lambo's for errbody!
6/ RRP balances are slightly down over the last month, but the market is clearly anticipating this buy back operation to push RRP balances much much lower.
7/ And this is why everything that depends on liquidity is ripping hard to the upside.
8/ These buy backs and re-issues of new on-the-run T-bills have not actually happened yet. If this is just a trial balloon and it pops, make sure to put on your adult diaper for the reversal.This post is based on this twitter thread.