Dissecting the Fed’s foreign repo pool – the users

This is the first post in a series of four examining the Federal Reserve’s foreign repo pool. After an introduction, it attempts to figure out who is responsible for the rise in the pool since 2014.

Subsequent posts in this series:

The growth of foreign exchange reserves over the past decades gave rise to a new investor class: a class predominantly focused on safety, excessively concerned about the liquidity terms of their investments and a class trying to avoid private counterparty risk at almost all costs.

In a sense, FX reserves managers epitomize the first half of the old saying about the return of capital vs. the return on capital.

In order to fulfil their mandate, FX reserve managers usually have outsized allocations to G10 fixed income instruments with a heavy tilt towards public sector securities. Occasionally there is some equity exposure, though most of it is, in cases where deployment is certain to be in the distant future, outsourced to SWFs. While G10 government bonds are very liquid, most FX reserve managers also hold some cash (usually bank deposits) or cash substitutes (government bills/MMFs/short-term repos) as a first line of defense, with even less duration & credit risk than longer-term bonds.

This liquidity tranche and in particular a rapidly growing place in the US of almost absolute safety is the topic of this series of posts.


In a previous article, the cash holdings of a particular FX reserve manager, SAMA, were analyzed. Continue reading “Dissecting the Fed’s foreign repo pool – the users”

Dissecting the Fed’s foreign repo pool – the users