What if a sudden reverse-repo drawdown starves money funds of collateral?
A sudden RRP drawdown leaving government MMFs short collateral spikes repo and starves overnight funding; the read is a modest credit/HY widening and crypto-liquidity drain rather than a full crisis. Rhymes with the Sept 2019 repo spike, which the Fed quelled with standing-facility liquidity. Government funds finance dealer Treasury inventory; a collateral scramble lifts funding costs system-wide. Forward angle: the SRF now exists precisely for this, so the shock is capped and brief — small, fadeable moves, not a Lehman-grade event.
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The butterfly cascade
How this trigger trickles across markets, left → right — the root shock, its first‑order moves, then the ripple effects. Drag any node; tap a market for its real price history.
Resolution timeline — how this probability is moving
Our model's odds (electric blue) over time vs the market's (Polymarket, amber), from the past toward the 0–6 months horizon. Each dot is a real macro event that nudged the probability — green pushed it up, red pushed it down. Tap a dot for the source. Loading the probability audit trail…
What it would mean
If this plays out, it is a risk-off shock. Sudden Fed RRP drawdown leaves government money funds scrambling for collateral, spiking repo rates and starving short-term funding markets overnight. The trigger decomposes into signed root‑shocks — Credit spreads ▲ · Financial conditions ▲ — which propagate through our causal graph to the markets below.