Dollar Funding Market Is Feeling the Strains of Too Much Cash
- Benchmark for repo rates falls for first time since October
- Short-end rates are still plagued by a lack of collateral
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The glut of cash in the financial system and increasing bets on rising U.S. yields are once again pressuring interest rates in the short-term funding market, where institutional holders of cash make overnight loans collateralized by U.S. Treasury securities.
The Secured Overnight Financing Rate, the Federal Reserve’s preferred replacement for Libor, dropped to 0.04% from 0.05% on Dec. 20, according to New York Fed data published Tuesday. It was the first decline in the benchmark since October.