Key US Short-Term Rate Soars Amid Month-End Turbulence, Report by Reuters

NEW YORK (Reuters) – A significant U.S. overnight funding interest rate increased on Monday, indicating tighter liquidity in the money markets as the month and the third quarter came to a close.

The Secured Overnight Financing Rate (SOFR), which reflects the cost of borrowing cash overnight secured by Treasury securities, rose to 4.96% on Monday, up from 4.84% at the end of the previous week, according to data from the Federal Reserve Bank of New York.

Excluding fluctuations related to the Federal Reserve’s policy rate changes, Monday’s SOFR increase marked the largest single-day change since March 2020.

The rate surpassed the interest on reserve balances (IORB) that the Fed pays to banks by six basis points, indicating funding pressure.

In addition, the DTCC GCF Treasury Repo Index, which monitors the average daily interest rate for the most-traded General Collateral Finance (GCF) Repo contracts for U.S. Treasuries, reached 5.221% on Monday, approximately 32 basis points above IORB.

Angelo Manolatos, a macro strategist at Wells Fargo, noted that the "turbulence in repo markets" pointed to increased funding pressure.

A surge in the price of repurchase agreements, or repos, can indicate a scarcity of cash in a crucial funding market for Wall Street. In September 2019, short-term funding costs spiked, prompting the Federal Reserve to intervene by injecting liquidity into repo markets.

"Repo rates typically increase at quarter-ends as balance sheet reporting leads dealers to limit their matched book activities," said Joseph Abate, an interest rates strategist at Barclays. However, he added that the sharp rise in borrowing rates on Monday suggested that banks’ balance sheet capacity was "far less available than expected and significantly more expensive."