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How the Fed’s Overnight Reverse Repo Facility Works

Daily take-up at the overnight reverse repo (ON RRP) facility increased from less than $1 billion in early March 2021 to just under $2 trillion on December 31, 2021. In the second post in this series, we take a closer look at this important tool in the…



Daily take-up at the overnight reverse repo (ON RRP) facility increased from less than $1 billion in early March 2021 to just under $2 trillion on December 31, 2021. In the second post in this series, we take a closer look at this important tool in the Federal Reserve’s monetary policy implementation framework and discuss the factors behind the recent increase in volume.

In yesterday’s post, we presented a stylized view of the Fed’s implementation framework for monetary policy, in which (i) the Federal Open Market Committee (FOMC) communicates the stance of monetary policy through a target range for the federal funds rate, (ii) interest on reserve balances (IORB) is a key tool, and (iii) an ample supply of reserves ensures that the interest rate paid on banks’ reserve balances maintains the effective federal funds rate (EFFR) within the target range. However, in the United States, banks are only a part of the money market ecosystem—nonbank financial institutions make up a significant share of lending activity.

As a result, the FOMC employs another tool called the ON RRP facility, which is available to a wide range of money market lenders. This facility is particularly important for monetary policy implementation in periods when reserves are elevated. As reserves grow, banks’ willingness to take on additional reserves diminishes, and they reduce the rates they pay for deposits and other funding. In this environment, market rates trade below the IORB rate because nonbank lenders are willing to lend at such rates. For example, the Federal Home Loan Banks (FHLBs), which are important lenders in the fed funds market and not eligible to earn IORB, are willing to lend at rates below the IORB rate rather than leave funds unremunerated in their accounts at the Fed. To provide a floor under the fed funds rate, the FOMC introduced the ON RRP facility.

What’s the ON RRP Rate and How Does It Work?

In concept, the ON RRP facility acts like IORB for a set of nonbank money market participants. Through the ON RRP facility, eligible institutions—money market funds, government-sponsored enterprises, primary dealers, and banks—can invest overnight with the Fed through a repurchase agreement (repo).

By setting the ON RRP rate, the FOMC establishes a floor on the rates at which these institutions are willing to lend to other counterparties. The floor improves these institutions’ ability to negotiate rates on private investments above the ON RRP rate and provides an alternative investment when more attractive rates are not available. 

When Is the ON RRP Facility Used?

In periods when the EFFR is close to or above the IORB rate, we would not expect the ON RRP facility to see much take-up as money market participants have access to alternative investments at more favorable rates. This can be seen in the charts below. The first chart shows that as reserves steadily declined during the monetary policy normalization process, in 2018 and 2019, the EFFR increased relative to the IORB rate. The second chart shows that as the EFFR-IORB spread increased, take-up at the ON RRP facility decreased and was almost always very small, until the pandemic.  

The Spread between the EFFR and the IORB Rate Tends to Decrease when Reserves Increase

Chart: The Spread between the EFFR and the IORB Rate Tends to Decrease when Reserves Increase

Sources: Federal Reserve Economic Data (FRED); authors’ calculations.
Notes: IORB is interest on reserve balances. EFFR is effective federal funds rate. Month-end observations are dropped.

Take-up at the ON RRP Tends to Be Larger when the Spread between the EFFR and the IORB Is More Negative

Chart: Take-up at the ON RRP Tends to Be Larger when the Spread between the EFFR and the IORB Is More Negative

Sources: Federal Reserve Economic Data (FRED); authors’ calculations.
Notes: ON RRP volume is the total value for overnight reverse repurchase agreements from September 23, 2013 to December 16, 2015, and the total value for overnight reverse repurchase agreements under the ON RRP facility from December 17, 2015 onward. EFFR is effective federal funds rate. Month-end observations are dropped.

In contrast, when reserves are plentiful and the EFFR moves closer to the bottom of the fed funds target range, the rate offered at the ON RRP facility becomes more attractive relative to alternative investments and we would expect to see an increase in take-up at the ON RRP facility. (The available supply of safe investments like Treasury bills can also influence the EFFR, as suggested in this Liberty Street Economics post.) At such times, the ON RRP facility is particularly important for the control of the EFFR. This is indeed what happened from 2013 through 2017, and in 2021 as well. As reserves have reached unprecedented levels over the last year, so has take-up at the facility.

Is the ON RRP Facility Too Large?

An ON RRP transaction—which is economically similar to a secured loan—does not change the size of the Fed’s balance sheet but does shift the composition of the Fed’s liabilities. For instance, when a money market fund reduces overnight deposits with a bank and directs those funds to the ON RRP facility, the increase in the ON RRP facility decreases reserve balances held by banks at the Fed. The ON RRP facility, thus, allows the Fed’s liabilities to be more broadly distributed among money market participants.

This broader distribution of Fed liabilities is particularly useful in environments where the FOMC uses asset purchases to stimulate the economy, and reserves rise as a result. Since reserves can only be held by banks, substantial growth in reserves can put pressure on bank balance sheets. Therefore, when the ON RRP facility grows it reduces these pressures by offering liabilities that can be held by a broader set of financial market participants, supporting the FOMC’s efforts to stimulate the economy through asset purchases.

The next chart shows that an increase in take-up at the ON RRP facility moderates the growth in reserve balances. Hence, when ON RRP take-up is high, as it is today, the supply of reserves is lower than it would be absent the ON RRP facility, and banks’ balance sheets are less impacted.

ON RRP Take-up Reduces the Supply of Reserves, Everything Else Equal

Sources: Federal Reserve Board (H.4.1 – Factors Affecting Reserve Balances); authors’ calculations.

How Effectively Does the ON RRP Facility Control Rates?

The Fed began testing ON RRPs in September 2013 and then transitioned the ON RRP facility to an implementation tool around the “lift-off” of interest rates in December 2015. Since that time, the EFFR has only printed below the target range once, at the end of 2015.

As shown in the next chart, the ON RRP facility has been very effective at providing a floor under the EFFR even as aggregate reserves have continued to grow in 2021, rising above the unprecedented level of $4 trillion in July.

ON RRP Facility Has Been an Effective Floor under the EFFR

Chart: ON RRP Facility Has Been an Effective Floor under the EFFR

Sources: Bloomberg L.P.; Federal Reserve Economic Data (FRED); authors’ calculations:
Notes: EFFR is effective federal funds rate. IORB is interest on reserve balances. ON RRP rate is the rate for overnight reverse repurchase agreements from September 23, 2013 to December 16, 2015, and the rate for overnight reverse repurchase agreements under the ON RRP facility from December 17, 2015 onward. Shaded area represents the Federal Open Market Committee’s target range for the federal funds rate. Month-end observations are dropped.

To Sum Up

To circle back to the beginning of the post, in the recent environment of abundant reserves, the ON RRP facility is working as expected. It is providing a floor under the fed funds rate and moderating the growth in reserve balances as the Fed continues to provide support to the U.S. economy.

Gara Afonso is an assistant vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Lorie Logan

Lorie Logan is an executive vice present in the Bank’s Markets Group and manager of the System Open Market Account for the Federal Open Market Committee.

Antoine Martin is a senior vice president in the Bank’s Research and Statistics Group.

William Riordan is an assistant vice president in the Bank’s Markets Group.

Patricia Zobel is a vice president in the Federal Reserve Bank of New York’s Markets Group and deputy manager of the System Open Market Account for the Federal Open Market Committee.

How to cite this post:
Gara Afonso, Lorie Logan, Antoine Martin, William Riordan, and Patricia Zobel, “How the Fed’s Overnight Reverse Repo Facility Works,” Federal Reserve Bank of New York Liberty Street Economics, January 11, 2022,

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

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Revenge travel is coming to an end, says industry CEO — a recession will replace it

The CEO of Intercontinental Hotels Group says that the world has moved beyond revenge travel–even China.



Maybe revenge isn't so sweet anymore. Not so long ago the term "revenge travel" was making the rounds. The idea was that people were so fed up with the covid-19 pandemic lockdown that they packed their bags and took off for just about anywhere once travel restrictions started to ease.

Related: Delta adds a route U.S. tourists have been begging for

Last year, travel insurance company Allianz Partners projected that travel to Europe would soar 600% over 2021. “The pandemic made people realize you can't take travel for granted and many Americans are eager to visit Europe this summer,” Daniel Durazo, director of external communications at Allianz Partners USA, said in an April 2022 statement.

'Last stage of pent-up demand'

The Summer of '23 was also pretty strong, according to a survey by the Federal Reserve Bank of New York, which found that almost a third, or 32.8%, of all U.S. households took a vacation between May and August, up from 28.5% in August 2022 and a record high in data going back to 2015. However, it looks like the revenge travel upswing is coming to an end. The Federal Reserve's Beige Book said in September that consumer spending on tourism was stronger than expected, "surging during what most contacts considered the last stage of pent-up demand for leisure travel from the pandemic era." Elie Maalouf also thinks that the revenge travel dish has gone cold. The CEO of Intercontinental Hotels Group  (IHG) - Get Free Report said in an interview with CNBC that he believes pent-up demand is over. "People started traveling really by the end of 2020 as restrictions started to lift,” he said. “So we’re really past revenge travel — even in China.” Intercontinental Hotel Group operates hotels under several brand names, including Regent, Crowne Plaza, Holiday Inn Club Vacations, and Candlewood Suites. The company’s latest quarterly update showed travel demand remained strong during the close of the summer travel season. “We think we’re in a sustainable place,” Maalouf said. “Our bookings for groups and meetings going into 2024 and beyond are the strongest we’ve seen in a very long time.”

Average room rates increase

IHG’s third quarter trading update showed the company’s revenue per available room — or “revpar” — was up 10.5% compared to third quarter 2022, and nearly 13% higher compared with the third quarter of 2019, which was before the pandemic. This is despite a 3% drop in revpar, compared to 2019, in large cities in Greater China, which are more dependent on international travelers. Maalouf said that lack of “airlift,” or flight capacity, into China is below 50% of prepandemic levels, which is affecting travel recovery in cities like Beijing, Shanghai, Guangzhou and Shenzhen. “But if you look at the country as a whole, travel — which is mostly domestic in China — it’s recovered well above 2019,” he said, adding that more than 80% of IHG’s business in China is in mid-sized to smaller cities. Occupancy levels in the third quarter at IHG hotels was 72% — just 1% shy of pre-pandemic levels, according to the quarterly update. But average room rates have jumped well above 2019 levels — up nearly 6% in Greater China, 15% in the Americas, and 24% in Europe, Middle East, and Africa (EMEA) and Asia. But rising rates are barely keeping up with inflation, said Maalouf. “Room rates have not really exceeded inflation in any of our markets,” he said. “I think people’s willingness to travel is exhibited by the fact they’re willing to pay.” Get investment guidance from trusted portfolio managers without the management fees. Sign up for Action Alerts PLUS now.

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Spread & Containment

How Novo Nordisk’s Rybelsus went from pandemic washout to blockbuster amid the GLP-1 boom

Novo Nordisk’s Rybelsus pill was long expected to be a hit out of the gate.
The Danish drugmaker cashed in a priority review voucher in early 2019 for…



Novo Nordisk’s Rybelsus pill was long expected to be a hit out of the gate.

The Danish drugmaker cashed in a priority review voucher in early 2019 for what would be the first oral GLP-1, primed by positive studies showing reduced blood sugar in patients with type 2 diabetes. Analysts and company insiders anticipated blockbuster status for the oral version of semaglutide, with peak sales expected to hit up to $5 billion — and potentially follow the trajectory of its sibling injectable Ozempic, which reached $1.6 billion in sales in less than two years.

Camilla Sylvest

“We have another monumental event with the world’s first oral GLP-1,” commercial strategy chief Camilla Sylvest said in November 2019. “This is not just a compressed pill. This is a pill that has a clinical profile to compete and [that has] the oral administration to compete. It’s an unbelievable opportunity for us.”

But then health officials declared the Covid-19 pandemic in March 2020, and everything changed. Novo’s sales reps couldn’t do in-person meetings. No commercial advertising shoots were allowed. Patients scrapped going to the doctor for elective purposes. As Novo’s launch plans crumbled, so did the promise of Rybelsus.

Three and a half years later, amid a frenzy of all things GLP-1, Rybelsus has come back to life — albeit slowly, and with skepticism over its efficacy for weight loss compared to injectables.

There’s fresh enthusiasm for other oral GLP-1s in development, and Ozempic, approved for type 2 diabetes, is now a household name. That’s in part because people have been taking Ozempic — and more recently, Rybelsus — off-label for weight loss amid shortages of Wegovy, the injectable version of semaglutide approved for obesity. But there are also concerns about tolerability in a market that’s increasingly crowded.

The pandemic disruptor

Back in late 2019 and early 2020, everything was going as planned for Rybelsus. The FDA approved the pill in 3 mg, 7 mg and 14 mg doses. Novo had expanded its manufacturing facilities in North Carolina, and it was working on plans for a broad direct-to-consumer ad campaign, including mainstream TV commercials.

The company was so confident that it priced Rybelsus on par with Ozempic at about $770 per month, to the surprise of some analysts at the time. The commercial strategy was to market its GLP-1 drugs side-by-side, positioning Ozempic as the first and preferred injectable for type 2 diabetes and Rybelsus as the first and preferred oral medication, Sylvest and then-chief scientific officer Mads Krogsgaard Thomsen said in an investor call, according to AlphaSense transcripts.

Mads Krogsgaard Thomsen

“With our two recent GLP-1 products, Ozempic and Rybelsus, we want to redefine type 2 diabetes treatment,” Novo wrote in its 2019 annual report. “We are at the forefront of innovation in the GLP-1 class and orally administered delivery devices and are pursuing several therapeutic opportunities with semaglutide.”

But then came Covid, and Novo had to switch gears from the splashy DTC ad campaign to animated work with an upbeat soundtrack that eventually debuted in the autumn of 2020. For the first six months of that year, Rybelsus brought in just $92 million.

By 2022, however, it rang up sales of $1.7 billion, more than twice its 2021 total, likely fueled by the demand for semaglutide sibling brand Wegovy, which was approved to treat obesity in mid-2021. Novo is reporting Q3 sales next week, with Rybelsus likely on track to top $2 billion in sales this year. Novo declined comment for this story, citing its quiet period ahead of its Q3 earnings release.

Off-label for weight loss

As Wegovy took off and supplies waned, clinicians used their off-label prescribing power to redirect desperate obesity and overweight patients to Ozempic.

Some physicians turned to Rybelsus. Tracking off-label prescribing is difficult, but data show that there were 157,500 Medicaid prescriptions for Rybelsus for weight loss in 2022. In the same year, Wegovy had 30,100 Medicaid prescriptions for weight loss, while Eli Lilly’s type 2 diabetes treatment Mounjaro had 30,700, according to a KFF analysis in August. Ozempic was the lead seller among Medicaid populations, at more than 978,000 prescriptions.

That said, Rybelsus does not seem to be as effective at weight loss as the other approved GLP-1s.

Diana Thiara

Diana Thiara, medical director of the University of California, San Francisco’s weight management program, calls the new GLP-1 meds in general “amazing,” citing an example of a patient taken off a lung transplant list after losing weight and improving lung function. But she also acknowledges the social trends driving low-dose oral uptake by “people so desperate to lose weight.”

“I have one patient who can’t even use our MyChart electronic health communications, but tells me about what Reddit says,” she said. “Reddit and TikTok people say stuff, but that’s not really what the evidence shows right now.”

Rybelsus’ current highest dose is equivalent to Ozempic’s lowest dose, though some experts say the lower doses can still help patients lose weight.

“The lower doses, based on my experience, are effective for weight loss,” said Kristin Baier, clinical director at Calibrate, a telehealth weight loss startup founded in 2020. “When used along with lifestyle changes, we have seen patients achieve up to 20% weight loss on the lower doses of oral semaglutide.”

The future of oral GLP-1 weight loss drugs

Novo is currently testing higher doses at 25 mg and 50 mg doses of Rybelsus in the Pioneer Plus (with type 2 patients) and Oasis (with people with overweight or obesity) trials against the 14 mg currently approved by the FDA. The results, published this spring and summer, show up to 15% bodyweight loss, which is on par with Ozempic and Wegovy.

Clinicians are also encouraged by differentiated competing oral candidates, like Pfizer’s danuglipron and Lilly’s orforglipron, both in Phase II trials. The candidates are non-peptide GLP-1s and can be taken with food. Rybelsus is directed to be taken on an empty stomach with small sips of water and a wait time of 30 minutes before other medications or food.

“With Novo Nordisk expected to file for the higher dose approval, I believe there’s going to be an uptake that hopefully would help with some of the manufacturing supply issues we see [with injectable semaglutides],” said Weight Watchers medical director Spencer Nadolsky. “It will be nice to have the larger dose option when it’s available.”

Yet, it’s not all upside on the weight loss front for Rybelsus.

“It’s equivalent to a pretty low dose of Ozempic. So in terms of weight loss, we don’t see much weight loss in terms of the average person at that dose of Rybelsus,” Thiara said.

She also has some concerns about the higher doses and gastrointestinal issues and tolerability.

“People just seem to have more side effects with oral Rybelsus than they do with the equivalent Ozempic dose,” Thiara said, adding that she does think it will be approved. “But head-to-head right now, with no supply chain issues and if 50 milligrams was on the market and I had a patient who was open to anything injectable or oral, I would probably skew towards injectable.”

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Popular mall retailer Express facing potential Chapter 11 bankruptcy

The brand has seen its sales fall and its costs rise dramatically which has caused it to fall behind on some bills.



The Covid pandemic hit malls hard. Even when they were allowed to operate, many people did not want to be confined in a tight space with other people breathing near them.

Mask rules and social distancing requirements made the once-fun experience of just wandering around a mall a whole lot less fun. Even when vaccines were introduced and life returned mostly to normal, some malls — generally the weaker ones before Covid — continued to struggle. 

Related: Beloved discount retailer faces significant bankruptcy risk

So far, no major mall-based retailer has filed for a post-Covid bankruptcy. Bed Bath & Beyond, Christmas Tree Shops, and Tuesday Morning, all of which went bankrupt and were liquidated, generally were located in strip malls. The same is true for Party City and David's Bridal, two chains that managed to survive their Chapter 11 filings.

But, mall retailers are not immune from the problems caused by Covid, where sales dropped to near zero for months, but expenses did not go away. That led to increased debt.

The pandemic also changed consumption habits. Some people still work from home full time and many Americans are now in hybrid work situations. That has changed their wardrobe needs and that's bad news for certain retailers, including Express, a mall favorite with over 500 stores nationwide.     

"Express is truly on a respirator and teetering on possible bankruptcy,” Shawn Grain Carter, a retail consultant and Fashion Institute of Technology professor, told RetailDive.

Some malls have seen smaller crowds, but that is not universal.

Image source: Getty Images

Express is struggling in many ways

Express has seen its sales fall and its cost rise,

The retailer’s consolidated net sales dropped 6.4% to $435.3 million, according to its second-quarter earnings report. In addition, the company’s selling, general, and administrative expenses have increased to $146.1 million (33.6% of net sales) compared to the second quarter in 2022. 

Perhaps most damningly, the chain's debt has consistently grown. In fact, its total debt was $220.8 million at the end of Q2 2023, compared to $202.2 million at the end of Q2 2022 and $122 million at the end of Q4 2022. 

"Over the last few months, speculation has been mounting about apparel retailer Express’ financial state. While some might speculate that one big thing has caused the retailer’s failure, that’s just not how bankruptcies work. Several things have been going wrong over a prolonged period," Matthew Debbage, Creditsafe CEO of the Americas and Asia, told TheStreet via email.  

According to Creditsafe data, 35% of the company’s owed payments are past due, which amounts to over $3 million.

"On top of this, Creditsafe data reveals that the value of these late payments is well over $3 million. While this might not seem like a big chunk of money compared to Express’ annual revenue, the fact that the retailer’s DBT (Days Beyond Terms) has increased consistently for the last six months indicates that its cash reserves are likely low, which will only drop even lower if sales continue to decline, operating costs keep rising and its debt load grows," he said.

It's a slowly rising tide that could ultimately swallow the company.

"When you combine all these factors, I can see why some analysts are speculating that the company could be at high risk of bankruptcy," he wrote.

Debbage believes the company should be taking steps to prepare for a Chapter 11 filing (even if it ends up not needing one).

"What Express needs to be thinking about right now is how it can cut operating expenses with a recession looming and consumer spending expected to drop significantly," he wrote. "The retailer’s finance leadership should also be prioritizing data, analytics and technology to make sure it has the right financial data so it can get a clear picture of its financial affairs, especially if it tries to secure financing to stave off bankruptcy."

Express did not return an immediate request for comment sent to its investor relations email.

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