Happy New Year to all of you!

There will be plenty of late Christmas presents and New Year gifts from the US fiscal- and monetary authorities to start the year with.

USD liquidity is likely going to increase massively in Q1 due to a series of technicalities surrounding the BTFP, ON RRP and TGA facilities. We are set for a material rally (or a blow off top) in Q1.

Let’s have a look at the details.

The ON RRP Facility
The ON RRP facility will end the year around $1trn in size, but the issuance calendar looks compelling for a continued drawdown of the facility. The issuance will be heavy in January and March, and it remains consistent with a depletion pace of above $300bn in the ON RRP facility on a monthly basis, with the biggest draw to be expected in January.

When a USD is withdrawn from the ON RRP facility to buy a T-bill, it automatically creates a new Dollar in deposit in the banking system, unless it is stored on the Treasury General Account (TGA).

Chart 1: The ON RRP facility is driven by issuance