Economics
Fed May Act If U.S. Short-End Rates Slump Toward Zero, BofA Says
- Central bank may lean against repo and cash rates near zero
- March 2021 SOFR futures may benefit; also U.S. 2-year vs OIS
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U.S. short-term market interest rates appear poised to collapse toward zero during the first half of 2021 because of a supply-demand imbalance, an outcome the Federal Reserve is likely to take action against, Bank of America Corp. strategists said.
The combination of a big increase in bank reserves as the Treasury Department spends down its near-record cash balance, and a steep drop in the supply of Treasury bills has the potential to push repo and other short-term market rates toward zero, Mark Cabana, head of U.S. rates strategy at Bank of America, and Olivia Lima wrote in a report Thursday.