Repo markets reacted to a recent spike in the secured overnight financing rate (SOFR) as an increase in Treasury yields led to a scramble for cash over month-end. Despite a much quieter year-end period than has been experienced for many years, investors were recently caught off guard as SOFR spiked and demand for cash over November month-end increased significantly.
Rates and volumes in both repo and reverse repo markets spiked between November 30th and December 1st as a result, as investors turned to the financing markets to source liquidity. A number of factors have been listed for this sudden rise in month-end rates. The recent Treasury rally and the demand for financing, the paring back of banks repo market lending over the month-end period and the increased volumes of Treasuries in the market as a result of quantitative tightening and new issuance, have all been cited.