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2026-05-27 20:11:04
[Repo Rates Jump 12 Basis Points, US Treasury Issuance Plummets by $30 Billion, 94% Probability of Fed Holding Rates Steady in June] ⑴ The overnight general secured repo rate opened flat at 3.69% on Wednesday, 12 basis points higher than the 10-day average of 3.57%. The rate did not fall as expected, indicating that the collateral market is preparing for outflows of $15 billion and $47 billion on Thursday and Friday, respectively, as well as month-end funding pressures. ⑵ The US Treasury announced on Tuesday that it would cut Treasury bill issuance by $30 billion. This week's repo rate rise may ease in the coming weeks as outflows cease. The Treasury clarified in its quarterly funding announcement that the Treasury bill issuance cuts will continue until mid-June. The overnight repo rate is expected to trade between 3.69% and 3.64%, with the 10-day average of 3.57% acting as a key resistance level. ⑶ The reverse repo rate on Wednesday was 3.50%. The last two reverse repo operations involved 5 and 6 institutions, with total demand of $970 million and $1.79 billion, respectively. The spread between 2-year Treasury bonds and repurchase rates widened by 10 basis points to 29 basis points, while demand for 10-year and 20-year bonds narrowed by 6 and 5 basis points to 16 and 9 basis points, respectively. (4) After the overnight collateral rate rose by 9 basis points to 3.69%, term collateral buying was revised upwards, currently 16.5 to 17.2 basis points higher than the 10-day average secured overnight funding rate of 3.55%. The 1-month, 2-month, and 3-month repurchase rates were 3.722%, 3.715%, and 3.717%, respectively. (5) The secured overnight funding rate futures price rose by 1.5 to 3 basis points, while the 0x3 overnight index swap was 3.644%, down 0.002% from the previous value. Based on the 10-day average of 3.55%, this pricing implies a 38% probability of a 25 basis point rate hike within the next 90 days. Federal funds futures indicate that the market is pricing in a 94% probability that the Federal Reserve will keep interest rates unchanged at its June meeting.
