Last week saw a wild ride for repo rates as the Secured Overnight Financing Rate (SOFR)—a broad measure of the overnight Treasury repo market—fluctuated between 1.95% and 5.25%. The week started with the SOFR rate moving higher to a range of 2.43-4.60% on Monday which was a significantly higher range from the prior Friday (2.16-2.40%). Then on Tuesday SOFR spiked to 5.25% with a print in the 99% percent of the range of trades at 9.00%. The rate stabilized a bit on Wednesday falling to a range of 2.10-5.00% with a rate of 2.55%. Then following the Fed Reserves announcement on Wednesday of a 0.25% rate cut to the Fed Funds Rate, SOFR fell to 1.95% on Thursday and to 1.86% on Friday.

In an effort to regain control over the SOFR rate the Federal Reserve Bank of New York (FRBNY) conducted a series of repo operations with the primary dealers in order to add additional supply to the repo market. On September 17^th, 18^th and 19^th it announced a series of $75 billion overnight repo operations with primary dealers, with a minimum bid rate of 2.10 on the 17^th and 1.80% on the 18^th and 19^th. Given the SOFR trend line noted above the Fed’s intervention appeared to be largely successful in getting the rate down into a more normalized range.

For the upcoming week the Fed announced the following additional repo programs: 1. Three different 14-day term repo operations in an aggregate amount of $30 billion each; and 2. Daily overnight repo operations in an aggregate amount up to $75 billion per day until October 10, 2019. The announcement states that “After October 10, 2019 the Desk [Open Market Trading Desk at the FRBNY] will conduct operations as necessary to help maintain the federal funds rate in the target range, the amounts and timing of which have not yet been determined.” Market participants (and LIBOR replacement working groups) will be watching these operations carefully to gauge whether or not the Fed is successful in maintaining a degree of control over this important short term-rate.

Good Day. DR2