Reverse Repos Hit a New Record High Today, It's Tapering With a Twist

Given that reverse repos are reverse of QE, the Fed has actually reduced its balance sheet over time.

On April 5, 2021, Reverse Repos were $3 billion. On April 4, 2021, they were $0. Historically, some of the $0 numbers are bogus, typically a holiday, but April 4 is confirmed by the small positive number on the 5th.

While expanding its balance sheet, the Fed has simultaneously been reducing it. Effectively, QE needs to be subtracted from the Fed's balance sheet.

Fed's Balance Sheet 

Let's Twist Again

The Fed's balance sheet has effectively been shrinking since the surge in reverse repos started. 

What's happening is a Twist operation, while the Fed has effectively been reducing its balance sheet it has been simultaneously been adding to duration. 

The Fed added assets at the long end (long-duration treasuries and mortgage-backed securities giving the housing market a huge boost it does not need) while subtracting at the short end in attempts to not break the money market mutual funds.

If the Fed did not do this twist operation rates would go negative at the short end. 

I expect this kind of manipulation will continue, if and when the Fed ever gets around to hiking rates.