ON RRP: Fed Overnight Reverse Repo facility explained
By Ken Chigbo, Founder, KenMacro. Published 2026-05-13.
Quick answer
ON RRP is the Federal Reserve’s Overnight Reverse Repurchase facility. It lets eligible counterparties, mainly money market funds, lend cash to the Fed overnight against Treasury collateral at a fixed rate. The facility sets a floor under short-term US dollar rates and is a core part of the Fed’s floor system for controlling the federal funds rate.
What is ON RRP?
The ON RRP, or Overnight Reverse Repurchase Agreement facility, is a Federal Reserve open market operation administered by the New York Fed. Eligible counterparties, which include money market funds, primary dealers, banks and government-sponsored enterprises, place cash with the Fed overnight and receive Treasury securities as collateral, earning a fixed administered rate. Because participants will rarely lend cash elsewhere below the ON RRP rate, the facility establishes a soft floor for short-term money market rates. It works in tandem with interest on reserve balances, known as IORB, to keep the effective federal funds rate inside the FOMC’s target range.
How traders use ON RRP
Macro traders watch the daily ON RRP take-up figure published by the New York Fed as a real-time gauge of system liquidity. Persistently high usage signals that money market funds have excess cash and limited attractive alternatives in bills and private repo, which often coincides with abundant reserves and easier dollar funding conditions. Falling usage suggests cash is being absorbed by Treasury bill issuance or higher private repo rates, which can tighten dollar liquidity and pressure risk assets. FX traders link these flows to USD funding stress, EUR/USD basis swaps and cross-currency repo. Rates traders use the ON RRP rate as the anchor for SOFR, bill yields and front-end Treasury pricing, and they track the spread between SOFR and the ON RRP rate to read repo market tightness.
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Common misconceptions about ON RRP
A frequent error is treating ON RRP balances as a measure of quantitative tightening progress. The facility reflects relative attractiveness of Fed lending versus bills and private repo, not the absolute stock of reserves. Another misconception is that ON RRP and the discount window are similar; they are opposites. ON RRP drains cash from the system, while the discount window injects it. Traders also confuse the ON RRP rate with the fed funds rate itself. The ON RRP rate sits at the lower bound of the target range, with IORB near the upper bound, and the effective fed funds rate trades between them.
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Frequently asked
Why does the Fed use the ON RRP facility?
The Fed uses ON RRP because not all money market participants have access to interest on reserve balances. Money market funds, in particular, hold trillions in cash but cannot earn IORB directly. Without a facility like ON RRP, these funds would lend cash in private repo at rates well below the FOMC’s target range, dragging the effective fed funds rate lower. ON RRP gives them a Fed-administered alternative, anchoring short-term rates inside the target band.
What does falling ON RRP usage mean for markets?
Declining ON RRP balances usually mean money market funds are deploying cash into Treasury bills, private repo or other short-term instruments offering yields above the ON RRP rate. This often coincides with heavier bill issuance from the Treasury, tighter private repo conditions, or reserve scarcity. For traders, sustained declines can foreshadow funding stress, wider repo spreads and pressure on risk assets that depend on cheap dollar liquidity.
How does ON RRP differ from standard reverse repo?
Standard reverse repo operations are flexible open market operations conducted by the New York Fed for monetary policy implementation, often at market-determined rates and variable sizes. ON RRP is a standing facility with a fixed administered rate, a published per-counterparty cap and uniform terms available every business day. Its purpose is administrative rate control rather than discretionary liquidity management, which is why it functions as a structural floor rather than a tactical tool.
Who can use the ON RRP facility?
Eligibility is limited to counterparties pre-approved by the New York Fed. The list includes primary dealers, the largest money market funds, certain banks and government-sponsored enterprises such as the Federal Home Loan Banks. Each counterparty faces a per-entity cap on daily usage. Retail investors and most non-bank financials cannot transact directly, though they gain indirect exposure by holding shares in money market funds that participate.
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