Rates Spark: Funds Rate Now Below 10yr SOFR
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ING Economic and Financial Analysis4.95K FollowersFollow5ShareSavePlay(4min)Comment(1)SummaryOn the Fed, it was a cut with some hawkish undertones, but Chair Powell showed more concern about the labour market than about inflation risks.And the outcome came with something bordering on renewed quantitative easing, given the leeway to go out to 3yr Treasuries if needed.If nominal GDP is growing at 3-5%, bank reserves too should expand at that rate. The Fed has reacted to this reality by implementing flexibility to buy T-bills in excess of the MBS roll-off, to ensure ample reserves. DNY59/E+ via Getty Images By Padhraic Garvey, CFA, Regional Head of Research, Americas and Michiel Tukker, Senior European Rates Strategist Finally, we have the funds rate below 10yr SOFR – now that’s more normal The recent FOMC meetings shareThis article was written byING Economic and Financial Analysis4.95K FollowersFollowFrom Trump to trade, FX to Brexit, ING’s global economists have it covered. Go to ING.com/THINK to stay a step ahead. We’re sorry we can’t reply to individuals' comments.Content disclaimer: The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.This publication has been prepared by ING solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. For our full disclaimer please click here.Quick InsightsHow does the SOFR curve shift impact funding strategies?With 3-month SOFR below 10-year SOFR, it's now cheaper to fund floating than fixed, removing negative carry concerns for floating-rate swaps as long as long-end rates remain elevated.What is the Fed's approach to balance sheet management going forward?The Fed is freezing balance sheet reductions and introducing flexible T-bill and Treasury purchases to maintain ample reserves, aligning reserve growth with nominal GDP expansion.Could the Fed's reserve management purchases affect market liquidity?Yes, the Fed's $40bn T-bill buying, with potential for longer Treasury purchases, supports front-end liquidity and may resemble QE if expanded, especially as repo markets remain tight.Recommended For You