“Since late 2008 banks have made about $200 million by borrowing very cheaply in the repo markets and investing the proceeds at the Fed. But now the FDIC is levying its insurance fee on repo liabilities as well as on deposits — and that fee means the free-money machine has printed its last greenback for the banks.
With the banks no longer borrowing money in the repo markets, the people on the other side of the trade — lenders to the repo market, which are often money-market funds — have found themselves with nowhere to safely park their short-term cash. Hence the rally in Treasury bonds: it’s a product of increased demand (from money-market funds) combined with decreased supply (as the Treasury tries to borrow more at the long end and less at the short end of the curve, and as QE2 mops up much of what is being issued).”
-FDIC is charging banks more
-FRB is crowding private demand for short term bills.