The abnormal fluctuation of SOFR at the end of the quarter is regarded as an important signal of liquidity crisis at the end of the balance sheet reduction cycle. Similar fluctuations also occurred on the eve of the end of the balance sheet reduction in 2019. JPM CEO said that the issue of stopping the balance sheet reduction has been put on the agenda. Generally speaking, the Federal Reserve will consider stopping the balance sheet reduction when the following conditions are met: 1. The excess liquidity shown by the reverse repurchase tool (RRP) is close to zero. At present, the indicator has fluctuated around 300 billion for several months, and theoretically there is room for further decline; 2. The size of the Federal Reserve's balance sheet has reached the preset target of 6.5 trillion, and it is still around 7 trillion. 3. The amplified fluctuation of SOFR at the end of the quarter suggests tight liquidity. Although it is unlikely that the balance sheet reduction will be stopped at the FOMC meeting in November, there is still some hope in December. It is expected that this opportunity will come within one to two quarters. In the long run, the new market bottoming process will begin after the balance sheet reduction stops, and then you can consider the layout of spot opportunities on dips.

The RRP mechanism (Reverse Repurchase Agreement) has become an important short-term liquidity adjustment tool of the Federal Reserve in the past decade. The specific operation is that the Federal Reserve sells securities to financial institutions and promises to repurchase these securities at a predetermined price at a certain time in the future. Simply put, the Federal Reserve "borrows" cash from financial institutions with U.S. Treasury bonds as collateral and pays a certain interest. After a period of time (usually overnight, that is, one day), the money is returned. This interest rate is 20 basis points lower than the upper limit of the Federal Reserve's target interest rate. Currently, the interest rate cap is 5.5%, so the RRP interest rate is 5.3%.