The overnight US funding rate has reached its peak since January
NEW YORK, July 2 (Reuters) - Data released by the New York Federal Reserve on Tuesday revealed that the Secured Overnight Financing Rate (SOFR), a crucial metric for borrowing costs in the U.S. repurchase agreement (repo) market, climbed to 5.4% on Monday. This marks its highest level since January and underscores a tightening of liquidity conditions.NEW YORK, July 2 (Reuters) - Data released by the New York Federal Reserve on Tuesday revealed that the Secured Overnight Financing Rate (SOFR), a crucial metric for borrowing costs in the U.S. repurchase agreement (repo) market, climbed to 5.4% on Monday. This marks its highest level since January and underscores a tightening of liquidity conditions.
The jump from 5.33% at the end of last week follows heavy Treasury coupon debt supply, with the settlement of Treasury auctions straining banks' balance sheets, analysts said.
"SOFR should normalize in the coming days, as the supply gets digested," said Teresa Ho, head of U.S. short duration strategy at JPMorgan.
"However, it might take a little bit longer to normalize, not only because primary dealer inventories are already high, but also because itâs a holiday-shortened week, The increase from 5.33% recorded at the end of last week is attributed to a significant supply of Treasury coupon debt, which has strained banks' balance sheets following the settlement of Treasury auctions, analysts explained.
Teresa Ho, head of U.S. short duration strategy at JPMorgan, noted, "SOFR is expected to stabilize in the coming days as the market absorbs the supply. However, normalization may take longer due to already high inventories among primary dealers and reduced liquidity during this holiday-shortened week."
Goldberg explained that as quarter-end approaches, banks typically reduce their balance sheet availability to manage risk. He pointed out that the current situation reflects a noticeable impact from diminished liquidity compared to previous periods.
