Demand for Fed's reverse repos set to surge: JPMorgan

NEW YORK (Reuters) - Investor demand for the Federal Reserve's reverse repurchase agreements may grow six fold from current levels in the weeks after the central bank raises interest rates for the first time in nearly a decade, J.P. Morgan Securities analysts said on Wednesday.

They forecast money funds would represent $612 billion of the daily demand for reverse repos or RRP which the Fed pays money funds and other participants interest to hold its Treasuries securities.

Mortgage finance agencies, banks and other participants would account for $50 billion in RRP demand, bringing the total to $662 billion.

"The (overnight) RRP will reshape the interest rate landscape of the U.S. money markets," J.P. Morgan analysts wrote in a research note on Wednesday.

RRP is seen as a critical tool for the Fed to set a floor on short-term interest rates when it ends its near zero rate policy.

On Wednesday, the Fed awarded $107.41 billion of reverse repos to 43 bidders at an interest rate of 0.05 percent.

Total RRP demand could grow close to $1 trillion in the middle of 2016 due to a likely increase in appetite from reforms of the money market fund industry, J.P. Morgan Securities analysts said.

(Reporting by Richard Leong; Editing by Andrew Hay)

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