US TSYS/OVERNIGHT REPO: Rates Tick Up As KC Fed's Schmid Mentions IORB Tweak
Secured financing rates remained underpinned by Treasury bill settlements Thursday, with 2bp rises in SOFR to 4.00% and TGCR to 3.97%. That's 10bp and 7bp above IORB (3.90%), respectively, highest since Nov 3 and remaining elevated overall vs levels seen in recent years.
- As we noted yesterday there may be some slight relief Friday after a combined $37B in bill settlements on Weds/Thurs, though Monday could see rates underpinned once again due to $26.8B in coupon settlements.
- Effective fed funds picked up 1bp to 3.88%, marking the highest point relative to the Fed's target range (2bp below IORB, vs 7bp seen for most of 2021-25) since early 2021.
- We took note of KC Fed Pres Schmid's speech released today that mentioned lowering IORB, a technical adjustment which would see repo rates fall and in theory allow the Fed to hold fewer reserves than it otherwise would: "Another possible action could be to lower the interest rate that the Fed pays on reserves within the target band. Currently this rate is 15 basis points above the bottom of the band. Lowering the rate within the band would allow more space for other interest rates to move before bumping up against the top of the band. This would allow for a greater range of private intermediation of reserve demand before the Fed would feel the need to take action."
- Recall that when SOFR and TGCR spreads widened versus IORB in 2018, the Fed lowered IORB relative to the Funds range.
REPO REFERENCE RATES (rate, change from prev. day, volume):
* Secured Overnight Financing Rate (SOFR): 4.00%, 0.02%, $3197B
* Broad General Collateral Rate (BGCR): 3.97%, 0.02%, $1260B
* Tri-Party General Collateral Rate (TGCR): 3.97%, 0.02%, $1227B
New York Fed EFFR for prior session (rate, chg from prev day):
* Daily Effective Fed Funds Rate: 3.88%, 0.01%, volume: $78B
* Daily Overnight Bank Funding Rate: 3.87%, no change, volume: $172B
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SECURITY: US Edges Closer To Imposing New Penalties On Russia
US Treasury Secretary Scott Bessent told reporters, “anyone purchasing Russian energy is subsidizing attacks on the Ukrainian people,” per Reuters. Bessent’s comment comes as the US appears to be edging towards imposing new penalties on Russia, and the Trump administration weighs up selling Ukraine long-range Tomahawk missiles.
- Earlier today, US Defense Secretary Pete Hegseth said at the NATO defence ministerial meeting in Brussels, “If this war does not end, if there is no path to peace in the short term, then the United States, along with our allies, will take the steps necessary to impose costs on Russia for its continued aggression.”
- US Ambassador to NATO Matthew Whitaker told La Repubblica yesterday, “Tomorrow, the US will make an important announcement regarding arms supplies to Ukraine… There are almost—I don’t want to say unlimited possibilities—but certainly there are many consequences for not reaching a peace agreement that could be used against the Russians.”
- Politico reports that Senate Majority Leader John Thune (R-SD) “left the door open Tuesday to voting on a long-stalled Russia sanctions bill as soon as this month. He didn’t commit to putting it on the floor — noting he still has to coordinate strategy with the White House — but said he believes the issue is ‘pretty ripe.’”
- US Senators are also working to set up a bipartisan meeting with Ukrainian President Volodymyr Zelenskyy alongside his White House meeting with Trump on Friday.
US TSYS: Extending Lows Coincides With EU Public Contract Headlines
- Treasuries extending lows - through early overnight levels, coinciding with EU headlines that the EU is discussing "preferential treatment to give domestic firms bidding for public contracts worth about €2.5 trillion ($2.9 trillion) a year," Bbg.
- Note, however, 10Y Bund also declined and is rebounding. Currently, Tsy Dec'25 10Y contract trades 113-09.5 (-3.5), yld tapped 4.0359% high; curves flatter: 2s10s -2.675 at 52.260, 5s30s -2.631 at 99.664.
- Initial technical support at 112-26 (20-day EMA) followed by the 50-day EMA at 112-16. A clear break of the average would expose 111-13+, the Aug 18 low and a key support.
- Cross asset: Bbg US$ index -3.09 at 1211.35, stocks claw off lows: DJIA up 106.35 points (0.23%) at 46,375.71, S&P E-Minis up 31 points (0.46%) at 6,716.5, Nasdaq up 165.2 points (0.7%) at 22,684.25.
MNI EXCLUSIVE: EU Officials Comment on France's Fiscal Situation
EU officials comment on France's fiscal situation - On MNI Policy MainWire now, for more details please contact sales@marketnews.com
