Bank of AmericaStrategist Mark Cabana said that while the Fed's zero interest rate floor has so far remained intact, it is likely to be broken if money market funds are no longer willing to use reverse repo operations to help the Fed recover liquidity.
In order to strengthen the floor of interest rates, the Fed needs to raise the level of managed interest rates, that is, the (IOER) interest rate on excess reserves and the overnight reverse repo rate, and / or allow the holding of treasury bonds to mature and not to be reinvested.
Bank of America believes that it is appropriate for the Fed to raise the IOER by 5 basis points and the overnight reverse repo rate by 2-3 basis points.
The problem for money market funds is that the return on the extra money deposited with the Fed is zero, diluting shareholders' returns.