US TSYS/OVERNIGHT REPO: SOFR Dips Below EFFR, Post-FOMC Adjustments Pending
Secured rates fell back significantly Wednesday, with SOFR down 5bp to 4.57%. That move comes alongside GSE inflows reverberating through funding markets, and marks the first time this month that SOFR has printed below effective Fed funds (4.58%).
- Rates will adjust lower in Thursday's prints after the Fed's 25bp funds rate cut and 30bp ON RRP cuts are implemented - SOFR should fall by 26-30bp, with limited impact seen from the ON RRP tweak to EFFR.
REPO REFERENCE RATES (rate, change from prev. day, volume):
* Secured Overnight Financing Rate (SOFR): 4.57%, -0.05%, $2291B
* Broad General Collateral Rate (BGCR): 4.56%, -0.03%, $847B
* Tri-Party General Collateral Rate (TGCR): 4.56%, -0.03%, $820B
New York Fed EFFR for prior session (rate, chg from prev day):
* Daily Effective Fed Funds Rate: 4.58%, no change, volume: $112B
* Daily Overnight Bank Funding Rate: 4.58%, no change, volume: $251B
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US: USD: Dollar Touches Week's Lows As Lutnick Apparently Out Of Tsy Sec Running
With Punchbowl reporting that Cantor Fitzgerald CEO Howard Lutnick is to be nominated as President-Elect Trump's Commerce Secretary, he is considered to be out of the running for the higher-profile and more influential position of Treasury Secretary.
- The US dollar index extended losses to session lows (and lowest levels since last Wednesday) on the back of the news, continuing a correlation we pointed out last week between Lutnick's Treasury nomination odds and the USD (see chart).
- Last week the dollar began rebounding strongly in tandem with rising betting market implied probabilities that Lutnick would get the nomination. He is/was seen as one of if not the most pro-tariff candidates for the position, and tariffs are broadly seen as dollar-positive/foreign currency negative.
- The USD's retreat also came alongside an easing of geopolitical risk premia on headlines that the IAEA announced that Iran had agreed to stop producing bomb-grade uranium.
- Lutnick had already receded from 60+% betting market probability to be nominated as Treasury Secretary as recently as Monday, to 10% just before today's news. Kevin Warsh - broadly seen as a fiscal conservative - is now the favorite at 55% (Polymarket), with Scott Bessent at 21%, down from 70+% last week before Lutnick's name started gaining traction.
- The Commerce Secretary also plays a hand in implementing the tariff regime, but is considered to be more of a domestically-focused position.
OPTIONS: Larger FX Option Pipeline
- EUR/USD: Nov21 $1.0535-50(E1.4bln), $1.0600-10(E2.1bln), $1.0650(E1.3bln); Nov22 $1.0500(E1.1bln), $1.0600-15(E1.4bln)
- AUD/USD: Nov21 $0.6450(A$2.0bln)
- NZD/USD: Nov25 $0.6000(N$1.7bln)
- USD/CAD: Nov21 C$1.4025-40($1.2bln), C$1.4175($1.0bln)
US TSYS: US TSY 42D AUCTION: HIGH RATE 4.480%; 96.93% AT HIGH
- US TSY 42D AUCTION: HIGH RATE 4.480%; 96.93% AT HIGH
- US TSY 42D BILL AUCTION: DEALERS TAKE 44.83% OF COMPETITIVES
- US TSY 42D BILL AUCTION: DIRECTS TAKE 6.75% OF COMPETITIVES
- US TSY 42D BILL AUCTION: INDIRECTS TAKE 48.42% OF COMPETITIVES
- US TSY 42D AUCTION: BID/COVER 2.55
