The Repo Market
Overnight funding, SOFR, and the September 2019 episode that forced the Fed back into the plumbing
On the morning of Tuesday, September 17, 2019, an obscure overnight money-market rate that almost no one outside the plumbing of finance follows lurched from the prior week's roughly 2.20% to a daily-volume-weighted close of 5.25%, with intraday prints reportedly trading near 10% — well outside the Fed's then-current target federal funds range of 2.
00-2.25% (per the Federal Reserve Bank of New York's published SOFR data at apps.newyorkfed.
org/markets/autorates/sofr and the FEDS Notes piece by Anbil, Anderson, and Senyuz, 'What Happened in Money Markets in September 2019?', published February 27 2020 at federalreserve.gov/econres/notes/feds-notes/).
The rate was the Secured Overnight Financing Rate (SOFR), and the day was a wake-up call that the U.S. financial plumbing — the overnight market in which dealers, banks, and money funds trade Treasury securities for cash overnight — could break in broad daylight without an obvious crisis to point to.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 6 sections and ends with 6 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1Why repo is the rate that matters most for short-term funding
- 2From repo rates to short-term-funding stress signals
- 3U.S. overnight rates: who pays what to whom and what the rate signals
- 4September 17, 2019 — when the plumbing broke without a crisis
- 5Where to see this on the platform
- 6Summary