Key US short-term rate surges amid month-end turbulence By Reuters

NEW YORK (Reuters) – A key U.S. overnight funding interest rate jumped on Monday in a sign of tighter liquidity in money markets at the end of the month and the third quarter.

The Secured Overnight Financing Rate (SOFR), a measure of the cost of borrowing cash overnight collateralized by Treasury securities, rose to 4.96% on Monday from 4.84% at the end of last week, data from the Federal Reserve Bank of New York showed on Tuesday.

Excluding moves that occurred when the Federal Reserve changed the policy rate, Monday’s SOFR increase was the biggest one-day change since March 2020.

The rate went six basis points above the interest on reserve balances (IORB) that the Fed pays to banks, a sign of funding pressure.

Meanwhile, the DTCC GCF Treasury Repo Index, which tracks the average daily interest rate paid for the most-traded General Collateral Finance (GCF) Repo contracts for U.S. Treasuries, rose to 5.221% on Monday, some 32 basis points above IORB.

Angelo Manolatos, macro strategist at Wells Fargo in New York, said in a note the “turbulence in repo markets” signaled heightened funding pressure.

A spike in the price for repurchase agreements, or repos, can be a sign that cash is getting scarce in a key funding market for Wall Street. Short-term funding costs spiked in September 2019, forcing the Federal Reserve to intervene by injecting liquidity into repo markets.

“Repo rates normally trade higher on quarter-ends, as balance sheet reporting causes dealers to rein in their matched book activity,” Joseph Abate, an interest rates strategist at Barclays, said in a note on Tuesday.

But he said the rapid jump in borrowing rates on Monday indicated banks’ balance sheet capacity proved “far less available than expected and significantly more expensive.”