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2025-12-17 20:56:00
[Year-end liquidity crunch drives US overnight repo rates higher, 20-year Treasury funding costs surge] ⑴ The US overnight general collateral (GC) repo rate opened higher on Wednesday, at a bid price of 3.73%, unusually failing to soften despite easing settlement pressures. ⑵ Analysts believe this may be due to a shortage of free cash in the market or institutions holding onto funds until the new year, potentially keeping overnight rates near the upper limit of the interest rate corridor (3.75%) throughout December. ⑶ The funding premium for 20-year Treasury bonds increased sharply by 90 basis points, reaching a premium of 220 basis points relative to the GC rate, due to the delayed auction settlement date to December 31, resulting in high borrowing costs. ⑷ With the auction schedule for 2-year, 5-year, and 7-year Treasury bonds to be announced tomorrow, the funding premiums for these maturities may also face upward pressure. (5) Market expectations for a Fed rate cut in the first quarter of next year are moderate. Overnight index swap pricing shows that the probability of a 25 basis point rate cut in the next 90 days is about 50%, and the tight liquidity situation may continue in the short term.
