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2026-02-17 20:48:29
[Net Withdrawal of $60 Billion Pressures Overnight Financing Rate] ⑴ On Tuesday, with the issuance and settlement of Treasury bills and coupon bonds resulting in a net withdrawal of approximately $60 billion (the issuance size exceeded the maturing debt), market liquidity was squeezed, and the overnight financing rate opened 6 basis points higher at 3.76%. This outflow of funds coincided with an increase in net long positions in the market, coupled with insufficient manpower at some financing trading desks after the holiday, further exacerbating the financing pressure. ⑵ However, the upside potential is expected to be limited. Backed by the Federal Reserve's Standing Repurchase Facility (SRF), with an execution rate of 3.75%, it provides a ceiling for interest rates in the market. The GC rate is expected to fluctuate between 3.76% and 3.70%, with 3.70% also being the high-volume area where the 10-day moving average is located, potentially becoming a gravitational pull on funding rates. ⑶ From a term structure perspective, due to low expectations of interest rate cuts, the collateral yield curve remains flat. The 1-month repurchase rate was 3.662%, and the 3-month rate was 3.716%. In SOFR futures, the red, green, and blue contracts for more distant months continued their upward trend from last Friday, rising another 0.5 to 2.5 basis points during the day. Market concerns about geopolitical factors such as the US-Iran negotiations added uncertainty to interest rate trends. (4) Regarding expectations for Federal Reserve policy, federal funds futures pricing indicates an 11% probability of a 25 basis point rate cut at the March and April FOMC meetings, respectively. Short-term OIS pricing, on the other hand, shows an approximately 16% probability of a 25 basis point rate cut within the next 90 days.
