The substantial run-up in net bill issuance over the past few quarters, along with other factors, contributed to notable growth in securities dealers’ inventory of Treasury securities, shown in Figure 7—inventories that likely required financing in the repo market. Before these developments, Treasury bill yields and repo rates had been well below federal funds rates. The increases created an attractive alternative investment opportunity for federal funds lenders, including the Federal Home Loan Banks (FHLBs), which make up about 95 percent of current overnight lending in the federal funds market. Figure 8 shows that as repo rates rose relative to federal funds rates, volumes of FHLB lending in the repo market increased as some of the FHLB activity shifted into this market. As federal funds borrowers competed for this reduced pool of funds, rates rose. You may notice on Figure 1 that the federal funds rate had been rising within the range well before these recent shifts in Treasury market flows. This gradual and slow rise coincided with the ongoing decline in reserve balances that is a part of balance sheet normalization, which has raised the question of whether the decline in reserves might be putting upward pressure on overnight rates. In the academic literature on monetary policy implementation, models for the behavior of the overnight interbank rate generally boil down to its relationship with the stock of bank  14  This adjustment was discussed within the May 2018 FOMC minutes.
We see a similar potential with infrastructure funds, business trust and project bonds. We have also put  2  BIS Review 11/2008  in place a PPP framework to encourage public private participation in Singapore infrastructure projects. With this, we have successfully tendered for the ITE College West and the Singapore Sports Hub, the first and the largest sports facilities infrastructure PPP in the world. We believe these initiatives will bring business opportunities for the debt capital market community based in Singapore. Singapore prides herself to have established the reputation of a trustworthy and reliable financial centre, build on political stability, strong legal system, and a sound regulatory and supervisory framework that raises disclosure standards, fosters market discipline, and provides for greater transparency. As a regional hub, Singapore is also well connected to the rest of the world through our extensive network of FTAs, including Australia, India, Japan, South Korea and the US. Over 600 local and foreign financial institutions based here are able to access the growing pool of investors and opportunities; fueled by the strong performance of asset management activities in Singapore. The diversity in the sources of funds flowing into and through Singapore has also broadened, with increasing financial flows coming from South Asia and the Middle East. We have also taken the proactive and responsive approach to changes in the marketplace; having constant dialogues with institutions and listening to market players, like yourselves, to create a conducive business environment for financial institutions to operate in Singapore.