28 May 2026

In case you haven't noticed, there is just a tad excess liquidity out there...

SOFR – FF is the spread between two key US short-term rates: 1/ SOFR (Secured Overnight Financing Rate): the rate at which financial institutions borrow cash overnight, collateralized by US Treasuries (i.e. in the repo market). 2/ FF (Federal Funds rate, usually the effective fed funds rate, EFFR): the rate at which banks lend reserves to each other unsecured overnight. So the spread is secured rate minus unsecured rate. Under textbook conditions, secured borrowing is cheaper than unsecured borrowing — you're posting Treasuries as collateral, so the lender takes less risk and accepts a lower rate. That makes SOFR – FF slightly negative (typically a few basis points below zero) in calm markets. This is the "normal" state. SOFR materially below FF — usually means abundant reserves and ample cash chasing limited collateral. Cash holders accept low secured rates because they have nowhere else to put it. This is typically a sign of: - The Fed's RRP (reverse repo facility) being heavily used - QE having left the system flush - or scarcity of high-quality collateral (Treasury bills, in particular). Source: zerohedge

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