The Secured Overnight Financing Rate (SOFR) surged to 4.96% on Monday, indicating tighter liquidity in money markets at the end of the month and the third quarter. This jump, the largest since March 2020, exceeded the interest on reserve balances (IORB) that the Fed pays to banks, suggesting increased funding pressure.
Additionally, the DTCC GCF Treasury Repo Index rose to 5.221%, 32 basis points above IORB, highlighting the heightened funding pressure. Angelo Manolatos from Wells Fargo noted that the "turbulence in repo markets" reflects this funding pressure.
Joseph Abate, an interest rates strategist at Barclays, explained that while repo rates typically rise on quarter-ends due to balance sheet reporting, the rapid increase on Monday indicated limited balance sheet capacity among banks, making borrowing more expensive.
Analysis:
When the U.S. overnight funding rate spikes, it can impact various financial instruments and markets. Investors should pay attention to these fluctuations as they may affect short-term funding costs and overall market stability. Understanding these changes and their implications can help individuals make informed decisions about their finances and investments.