Robust demand and limited dealer capacity drive rates

  • Overnight U.S. financing rate likely to remain elevated for weeks
  • Robust demand for funding causing the rate to stay around 5.33%
  • Borrowers include banks, money-market funds, and hedge funds
  • SOFR spiked in December, drawing comparisons to 2019
  • Demand for funding outstripping dealers’ ability to provide financing

The overnight U.S. financing rate is expected to remain elevated for the next few weeks due to robust demand for funding, according to Barclays strategist Joseph Abate. The rate, known as SOFR, is used to measure the cost of borrowing cash overnight collateralized by Treasury securities. It spiked in December and is likely to decline slowly this week, but demand for funding is expected to keep it around 5.33% for the foreseeable future. This surge in rates has drawn comparisons to a similar period in 2019 when the Federal Reserve had to intervene. The current situation is attributed to reduced dealer balance-sheet capacity, which is unable to meet the high demand for funding. As a result, bouts of rate spikes are expected to become more frequent.

Public Companies: Barclays (BARC)
Private Companies:
Key People: Joseph Abate (strategist)

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Factuality Level: 7
Justification: The article provides information about the overnight U.S. financing rate and the Secured Overnight Financing Rate (SOFR), as well as the demand for funding and its impact on the rates. The information seems to be based on the analysis and opinion of strategist Joseph Abate of Barclays. However, the article lacks additional sources or data to support the claims made. It would be more factual if it included more diverse perspectives and evidence to back up the statements.

Noise Level: 3
Justification: The article provides some information about the overnight U.S. financing rate and its potential impact, but it lacks depth and analysis. It also includes irrelevant information about text-to-speech technology and a request for feedback. Overall, the article is short and lacks substantial content.

Financial Relevance: Yes
Financial Markets Impacted: The article discusses the overnight U.S. financing rate and its impact on borrowing costs for institutions such as banks, money-market funds, and hedge funds.

Presence of Extreme Event: No
Nature of Extreme Event: No
Impact Rating of the Extreme Event: No
Justification: The article focuses on the impact of the overnight U.S. financing rate on borrowing costs, indicating its relevance to financial topics. However, there is no mention of an extreme event or its impact.

Reported publicly: www.marketwatch.com