#SOFR_Spike

Latest data from the Federal Reserve Bank of New York shows the Secured Overnight Financing Rate (SOFR) rose to 5.4% on July 3, reaching a six-year high. This rate represents the cost of banks borrowing money overnight using US Treasury bills as collateral, and this increase is reminiscent of the liquidity squeeze seen in September 2019.

David Brickell, one of the managers of Toronto-based crypto platform FRNT Financial, considers this situation as a short-term concern for the market.

Stating that there may be some financing pressure after the end of the second quarter, Brickell emphasizes that this situation reminds us of the increase in repo financing interest rates experienced in 2019. As pressure from excess government debt and Treasury bond issuance mounts, the Federal Reserve may need to end quantitative tightening and resume liquidity injections. According to Brickell, without the liquidity of the Federal Reserve, the financial system cannot absorb this debt and may quickly return to balance sheet expansion mode as the liquidity provider of last resort.

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