US TSYS/OVERNIGHT REPO
The pullback in secured rates from December's highs continued Friday, with SOFR down 2bp to 4.60%. That's back to Dec 6 levels, lower than the 4.64% peak on Dec 10 (which was more reminiscent of month-end levels).
- Heavy Treasury settlements are set to underpin secured rates again in today's print. But that too should dissipate. There is relatively more debate over the effect on broader rates from the FOMC's broadly expected 5bp downward adjustment to ON RRP rates on Wednesday (to 4.25% from 4.55%, so 30bp, assuming the Fed cuts the funds rate by 25bp as expected).
- Some analysts see the lower ON RRP passing through to at least some degree to EFFR (potentially lowering it by 2-3bp), but some don't see it affected at all.
- While both recognize that EFFR is more influenced by IORB (which is set to remain 15bp above the lower bound, so 4.40% from 2.65% currently) than ON RRP, Deutsche pencils in a 2bp EFFR adjustment, while Wrightson ICAP sees fed funds pricing "determined almost exclusively by the IORB rate", ie no change (they also now see the tweak happening in January and not this week).
- Secured rates are expected to fall more clearly in line, however, with triparty (TGCR) rates falling by 4-5bp in line with ON RRP, with a similar for SOFR either immediately or over the coming weeks.
REPO REFERENCE RATES (rate, change from prev. day, volume):
* Secured Overnight Financing Rate (SOFR): 4.60%, -0.02%, $2255B
* Broad General Collateral Rate (BGCR): 4.59%, -0.01%, $844B
* Tri-Party General Collateral Rate (TGCR): 4.59%, -0.01%, $815B
New York Fed EFFR for prior session (rate, chg from prev day):
* Daily Effective Fed Funds Rate: 4.58%, no change, volume: $102B
* Daily Overnight Bank Funding Rate: 4.58%, no change, volume: $249B
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