Learn
Repo market stress
The repo market is where banks, dealers and funds lend cash overnight against Treasury collateral. When it runs short of cash, overnight rates jump, and that strain spreads.
How repo works
In a repurchase agreement (repo), one side sells Treasuries and agrees to buy them back the next day at a slightly higher price: in effect a secured overnight loan. The rate on these trades is published every business day as SOFR, now 3.95%.
September 2019
After two years of quantitative tightening, bank reserves had fallen to about US$1.39 trillion. On 17 September 2019, with cash drained by corporate tax payments and Treasury bond settlements, SOFR jumped to 5.25% from around 2.4% a few days earlier. The Fed restarted repo operations to calm the market and later began buying Treasury bills.
Signs of stress to watch
- SOFR trading above the effective Fed funds rate (3.88%) and interest on reserves (3.90%).
- Rising use of the Fed’s Standing Repo Facility (latest: US$2 million).
- Falling bank reserves (US$2.89 trillion) and an empty reverse repo facility (US$5.1 billion).
- Spikes at month- and quarter-ends, when banks shrink their balance sheets.
Pro tracks these together, including the SOFR − EFFR spread.
Questions
What caused the September 2019 repo spike?
Reserves had fallen after two years of QT, and a large drain of cash on 16 and 17 September (tax payments and Treasury settlements) left lenders short, so overnight repo rates jumped. SOFR hit 5.25% on 17 September.
Is there repo stress now?
On 30 October 2026, SOFR was 3.95% against an effective Fed funds rate of 3.88% and interest on reserves of 3.90%; Standing Repo Facility use was US$2 million.
Related
Follow it every week. The Global Liquidity Index is free. Pro adds 112 charts behind it, a weekly note on what’s driving it and an email when its momentum turns. Free for 10 days.
Global Liquidity Index Start free trialGeneral information only, not financial advice. Data can be delayed, revised or wrong. Sources and credits.