Goldman Sachs note that they “recently highlighted the downward pressure on secured financing rates that has pushed SOFR firmly through the RRP floor, noting that the drift lower would likely prove temporary and that markets appear to be anticipating as much. The SOFR/FF futures curves imply a relatively quick start to that normalization, however, with September futures contracts implying about 6bp of SOFR/FF tightening versus the recent 14bp spread. In our latest projections, we see modestly negative net bill supply over Q3 (reflecting flat supply in July, +150bn in August and -$180bn in September), making a reprieve from short-term collateral scarcity driven-downward pressures unlikely. Further, while it has yet to materialize, the risk that more rate sensitive deposits migrate towards the higher rates being offered by money funds could add to the supply/demand imbalance in the near term (with RRP usage rising even more despite the start of QT). Therefore, in our view, near-term relief implied by the futures curves is unlikely to be realized, and we recommend buying SERU2 versus FFU2.”
- They recommended entering the long SERU2 vs. short FFU2 position at 8.5bp, with a stop at 5.5bp and a target of 12.0bp.