Every week, on Thursday evenings, I pen an update on money market fund flows, RRP balances, T-bill auctions and usage of the Fed’s backstop facilities.

Those updates won’t win me any awards for creative writing. Blame the subject matter, not the editor. But they are necessary. Money market funds are at the center of several key 2024 debates, and I anyway wanted to create a natural environment (if you will) for short-end/funding market commentary.

In the latest such update, I noted that usage of the Fed’s Bank Term Funding Program (the backstop established in the wake of SVB’s collapse in March) quietly moved higher this month, exceeding $131 billion as of mid-week, up $21 billion since November 1.

One of our more astute readers noted that there’s “an attractive spread between interest paid on BTFP balances and interest received on bank reserves at the Fed.” That’s obviously true, and I think it’s well worth highlighting that spread.

As the figure above shows, that spread was 55bps on Thursday.

What does this mean, exactly? Well, in theory it means you can profit from the difference between the rate you’ll pay the Fed to borrow against your Treasurys (and agencies) and the rate you can earn from the Fed on your reserves.

The BTFP rate was 5.59% as recently as late-September, when the Fed was still feigning hawkish obstinance. It was 4.85% on December 22, down exactly 50bps since the introduction of the “Waller doctrine” on November 28, and down 32bps since the December FOMC meeting.