US TSYS/OVERNIGHT REPO: AM SRF Take-up At $10.6bln; Several Potential Drivers
Take-up at this morning's NY Fed Standing Repo Facility operation jumped to $10.6bln, the highest level since the period of funding market pressure around October month-end (where total SRF usage was $50bln across the two daily operations). This suggests we may see further upside in secured rates today, after a 3bp increase in SOFR and TGCR yesterday. The SOFR/IORB spread is now at 6bps, a five session high. There are a few factors that may be feeding into the latest developments in funding markets and SRF take-up:
- Early month-end dynamics amid the Thanksgiving holiday later this week.
- Net $14bln of US bill settlements on Nov 25, with an additional $52bln of net coupon/bill settlements due on Friday and $84bln of net coupon settlements due on Dec 1.
- Removal of GSE cash that had been parked in the market since mid-month.
A reminder that Fed QT will officially conclude on Dec 1. Focus is now shifting to when the Fed will start conducting reserve management purchases (likely in bills) to meet the underlying growth in liability demand. In the week to Nov 19, Fed reserves rose $34bln to a 4-week high of $2.92trln, driven by a pullback in the TGA . The TGA is now pulling back from its recent buildup to $1T, and looks headed to its quarter-end target of $850B.
Earlier today, Treasury Secretary Bessent commented on the progress of Fed Chair interviews. In his remarks, he noted that:
- "The Fed has taken us into a new regime — what is called ample reserves regime — and it looks like that might be fraying a bit here in terms of whether the reserves are actually ample in the system"
- "There are all these facilities and operations, the standing repo facilities, and I think we’ve got to simplify things"....“There’s this very complicated calculus between the monetary policy, the balance sheet and regulatory policy,”
- “And we’ve really emphasized in the interviews, what’s the interplay for that calculus?”..."I think it’s time for the Fed just to move back into the background"
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FED: MNI Fed Preview - October 2025: QT, Or Not QT
MNI's preview of the October FOMC has been published - Download Full Report Here
- The Federal Reserve is overwhelmingly expected to cut the funds rate by 25bp for a 2nd consecutive meeting on October 29, bringing the target range to 3.75-4.00%.
- This will again be framed as a risk management cut, with the limited data available since the September meeting not disconfirming that the shift in the balance of risks had tilted toward labor market downside.
- Dissent to this decision should once again be limited to Gov Miran in favor of a 50bp cut.
- With limited new developments and official data to opine on, Chair Powell’s press conference will be eyed for affirmation that a December cut remains on track, as signalled by the most recent Dot Plot.
- He’s unlikely to give much away, but it would be surprise given the lack of data and relevant developments if he suggested that a further 2025 cut was in any greater doubt than it was 6 weeks earlier.
- Instead, we think focus in terms of action at this meeting will be on the balance sheet, with the Fed likely to announce an end to quantitative tightening amid diminishing reserve levels and nascent evidence of funding market pressures.
- We will also be watching for any news on the Fed’s communications framework, with an updated “Dot Plot” potentially unveiled at some point by year-end.
MNI’s separate preview of sell-side analyst summaries to follow on Monday Oct 27
RATINGS: Moody's Lowers France's Outlook To Negative, Maintains Aa3 Rating
Moody's has lowered its outlook on France to negative from stable.
- Moody's was expected to at least lower the outlook, so this is not a surprise - there had been some risks perceived of a downgrade to A1 (from Aa3) in the domestic and foreign currency long-term issuer and domestic-currency senior unsecured ratings.
- Per the Moody's release: "The decision to change the outlook to negative reflects the increased risk that the fragmentation of the country's political landscape will continue to impair the functioning of France's legislative institutions. This political instability risks hampering the government's ability to address key policy challenges such as an elevated fiscal deficit, rising debt burden, and durable increase in borrowing costs, thus leading to a more rapid weakening in France's key fiscal metrics than we currently expect."
- Both S&P and Fitch have already downgraded France’s sovereign rating to the single-A bucket this year.
USDCAD TECHS: Corrective Pullback
- RES 4: 1.4200 Round number resistance
- RES 3: 1.4167 50.0% retracement of the Feb 3 - Jun 16 bear leg
- RES 2: 1.4111 High Apr 10
- RES 1: 1.4080 High Oct 16 and the bull trigger
- PRICE: 1.4016 @ 16:33 BST Oct 24
- SUP 1: 1.3979/3907 20- and 50-day EMA values
- SUP 2: 1.3829 Bull channel base drawn from the Jul 23 low
- SUP 3: 1.3769 Low Sep 19
- SUP 4: 1.3727 Low Aug 29 and a bear trigger
USDCAD has pulled back from its recent highs. The trend condition is bullish and a move lower is considered corrective. Moving average studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on 1.4111, the Apr 10 high, and further out, scope is seen for an extension towards 1.4167, a Fibonacci retracement. First key support lies at 1.3907, the 50-day EMA. Support at the 20-day EMA lies at 1.3979.
