Key short-term US rate rises amid end-of-month turmoil By Reuters

NEW YORK (Reuters) – The key U.S. overnight funding rate rose 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 overnight cash backed by Treasuries, rose to 4.96 percent on Monday from 4.84 percent late last week, data from the Federal Reserve Bank of New york. Tuesday.

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

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

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

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

A rise in the price of 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 rose in September 2019, forcing the Federal Reserve to intervene by injecting liquidity into the repo markets.

“Repo rates typically trade at the end of the quarter as balance sheet reporting prompts dealers to brush up on their bookkeeping,” Joseph Abate, interest rate strategist at Barclays, said in a note on Tuesday.

But he said Monday’s rapid rise in lending rates indicated banks’ balance sheet capacity was proving “much less available than expected and significantly more expensive”.