A Sudden Strain in Funding Is a New Headache for the Bond Market

There’s a new money market mystery to bedevil bond traders, who have already been grappling with one of the most volatile years for interest rates in history. This one has to do with a hot new type of funding and how it may have contributed to a surprise squeeze in money markets.

Last week the Secured Overnight Financing Rate, the interest rate benchmark that underpins global markets, jumped to a record high. It was an unexpected occurrence in the vast market for global financing, where investors borrow and lend trillions of dollars to each other through so-called repurchase, or repo, agreements.