SOFR Falls to 3.53% as Treasury Cash Drawdown Boosts Money Market Liquidity

The Secured Overnight Financing Rate (SOFR), a key US money market benchmark rate, continued its downward trend amid abundant liquidity conditions, falling to 3.53% as of the 9th according to the New York Federal Reserve, which calculates SOFR. The 5 basis point decline from the previous day marks the lowest level since May 21. The decline is attributed to a significant reduction in the US Treasury's cash balance, which has released liquidity into the money market, with Treasury cash standing at approximately $749.2 billion as of the 8th, down roughly $170 billion from the end of last month.

SOFR Falls to 3.53%, Lowest Since May 21

SOFR has declined every single day this month without exception. Compared to the end of last month, the rate has dropped 15 basis points. The spread between SOFR and the Interest on Reserve Balances (IORB), which currently stands at 3.65% and serves as the effective upper bound of the federal funds rate target range, reached negative 12 basis points. This also represents the lowest level since May 21. The IORB, which the Federal Reserve pays on banks' reserve balances, also functions as the upper bound for overnight money market rates. A wider gap below IORB indicates more abundant liquidity in the money market.

Treasury Cash Balance Drops $170 Billion

Data source: Federal Reserve Bank of New York

The US Treasury's cash balance has decreased significantly, creating a liquidity release effect. According to the latest data as of the 8th, the Treasury's cash balance stood at approximately $749.2 billion, roughly $170 billion below the level at the end of last month.

NY Fed's Perli Indicates Possible RMP Suspension

On the previous day, Roberto Perli, the System Open Market Account (SOMA) manager at the New York Fed, stated that there is a possibility of temporarily suspending the reserve management purchases (RMP) policy, which is being implemented to stabilize the money market. The SOMA manager position at the New York Fed directs the execution of the Federal Reserve's monetary policy under instructions from the Federal Open Market Committee (FOMC).

FAQ

What caused SOFR to fall to 3.53% as of the 9th?

SOFR fell to 3.53% as of the 9th due to abundant liquidity conditions in the money market, driven by a significant reduction in the US Treasury's cash balance which released approximately $170 billion in liquidity from the end of last month.

What did the NY Fed's Roberto Perli say about reserve management purchases?

Roberto Perli, the SOMA manager at the New York Fed, indicated on the previous day that there is a possibility of temporarily suspending the reserve management purchases (RMP) policy currently being implemented to stabilize the money market.