As anticipated, the Fed implemented a 25bps rate cut, setting the new target range at 3.75–4%. The FOMC revealed that quantitative tightening will end on December 1st. Once the run-off concludes, agency debt and MBS will be reinvested in Treasury Bills, while Treasury maturities from October and November will be reinvested across the curve.
Pockets of global money markets are facing pressure as central banks withdraw accommodative policies and governments ramp up debt issuance, drawing liquidity away from the broader financial system. Benchmarks linked to repo transactions, such as the Secured Overnight Financing Rate, have risen above the rate the Fed pays banks for holding reserves, known as the interest on reserve balances (IORB). See graph SOFR & IORB Rates (left axis: rates in %; right axis: differential in bps). The recent spike in repo rates has prompted increased reliance on the Fed’s liquidity facilities.
