SOFR surge signals funding pressure; less cash, dealer inventories, and repo demand risk Fed reassessment and early QT end.

Citizen Watch Report ^

[davikkm]

Last Friday the Secured Overnight Financing Rate (SOFR), a repo rate serving as the Fed’s new target reference rate , jumped 6 basis points (6 bps, 0.06) to above the Fed’s target range.

SOFR measures (www.newyorkfed.org/markets/reference-rates/sofr) the median cost of Treasury repo borrowing.

The jump not only caught most people off guard, but got eerily little attention. It likely reflects several market factors and a little bit of unfortunate timing (not unlike September 2019), but to the former New York Fed group officer Mark Cabana (now at BoA), the context is simple: