A great catch at the Financial Times.
From the FT, December 20:
Jennifer Hughes in New York an hour ago
Sofr’s brief divergence from Fed’s repo rate has rattled investors
A brief spike in US overnight lending rates this month is a likely harbinger of strains in money markets next year as the US government sells more Treasuries to cover its deficits, analysts have warned.
Concerns were sparked by a sudden jump early this month in the rate for borrowing cash overnight in the market for short-term funds, a move that was not mirrored in the rate charged by the Federal Reserve to take in excess cash.
A divergence between the two rates, which historically track each other closely, has raised fears over the potential for broader strains in the market lending rates for banks and customers, as cash becomes scarcer after years of excess liquidity.
“The real issue is whether you’re getting generalised funding pressure, or episodic as we saw here,” Joseph Abate, interest rate strategist at Barclays. “My sense is that it probably becomes more generalised.”
The sudden flicker at the start of December has increased attention on a corner of the money markets known as the repo, or repurchase, market. This acts as a benchmark for broader lending, from bank credit to leveraged trades, by setting the short-term cost of swapping high-quality collateral such as Treasuries for cash...
....MUCH MORE
The next two months are going to get very interesting in Fedland and the money markets, we'll have more after the holidays.
