There’s a Rush for the World’s ‘Safest’ Dollars, Deutsche Bank Says

Behold, the rush for the world’s safest dollars!

That shows balances at the Federal Reserve’s overnight reverse repurchase agreement facility, or RRP, which have surpassed the $2 trillion dollar level for much of the summer.

And while demand for ‘normal’ dollars has of course increased markedly in the same timeframe, with the Bloomberg Dollar Spot Index up around 10% this year, it’s the rush into this particular Fed facility that shows the forceful way in which investors are shifting into safe havens, according to Deutsche Bank AG strategist George Saravelos. That’s happening against a backdrop of a European energy crisis that has sent the euro and risk assets tumbling.

“Investors are currently placing more than $2 trillion dollars in overnight liquidity with the Fed, a more than $1 trillion rise since this time last year,” Saravelos said in a note published on Tuesday. “From a top down macro perspective it can be argued the surge in RRP usage boils down to one thing: an immense demand for ‘safe’ dollar assets. By offering what is essentially a collateralized interest-earning overnight deposit at the Fed with zero duration and credit risk, the Fed’s RRP facility constitutes the safest dollar asset in the world. And demand for such an asset currently appears immense.”