On December 1st 2023 Term SOFR jumped 6bps above the EFFR. I've seen a jump here and there by 2bps but never outpacing the EFFR by this much. Many bridge lending platforms I believe use this index on rate sheets so starting to get some questions. CLO's will execute using this as well.
I'm hearing either a big player was testing the market or pressure was put on the front end of the curve based on a large settlement. Has anyone heard what could of caused this. Seems that it's already pulled back inline with the EFFR, only staying elevated for the 1st and 4th.
I know many have been talking about the crazy play of Repo'ing cash reserves and even excess warehouse lines with liquidity being fairly prevalent as deal flow and lending has screeched to a halt.
Any input would be interesting to hear.
Based on the most helpful WSO content, it's not uncommon for rates like the Secured Overnight Financing Rate (SOFR) to experience fluctuations. These can be influenced by a variety of factors, including market conditions, large transactions, or changes in monetary policy.
In the case of the 6bps jump you mentioned, it could indeed be due to a large player testing the market or a significant settlement putting pressure on the front end of the curve. However, without more specific information, it's hard to say for certain.
As for the practice of Repo'ing cash reserves and excess warehouse lines, this can be a strategy used by some firms to manage liquidity, especially in times when deal flow and lending are slow. It's a way to put idle cash to work, but it does come with its own set of risks and considerations.
Remember, while I strive to provide accurate and timely information, the financial markets can be complex and unpredictable. Always do your own due diligence and consider seeking advice from a financial advisor or other qualified professional.
Sources: The Day of Days | The Daily Peel | 12/15/22, Q&A: Non-Target School to Portfolio Manager at a Top Hedge Fund – 6 Years Out of Undergrad, Tides Equities?, The end of LIBOR
Bump very interesting topic
Was curious on this as well… my total shot in the dark guess was that Fed cut back their repo program to test liquidity?
I’ve heard that. I think they finally are reacting….the other thought is companies are worried about liquidity due to poor earnings and pulling money to cash reserve. I agree with your opinion more.
i mean a large swath of 2s/5s/10s/20s settled almost all at once as well.
God I wish I knew what any of this means. Sounds super interesting
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