Scott Skyrm

The market removed all of the chances of easing, except for a small remnant in June. The market prices a 3% chance of an ease on June 17, a 12% chance of a tightening by July 29, a 35% chance of a tightening by September 16, and a 45% chance by October 28

@BlacklionCTA @ScottSkyrm O/n drifted higher all morning… 3.70-67 on screen now.

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It looks like the soft REPO funding bottomed. The big move should occur on Tuesday when the GSE cash leave the market and the $140 billion net new issuance begins for the week

TGCR trading at the lower bound - RRP Offer. This is happening because GSE's are deploying cash into REPO this week, Treasury has spent down TGA post tax-day, and the Fed's RMP. GSE cash will leave leave next week and Treasury is increasing TBill and CMB's lifting this rate. cc @ScottSkyrm @KastoRepo

Specials picked-up this week with the 2 Yr, 5 Yr, 10 Yr all Special. On-The-Runs tend to trade Special during and after market sell-offs. When investors sell Off-The-Runs to the Street, dealers often hedge those positions by selling On-The-Runs, which are much more liquid

RRP volume increased significantly this week. The closer O/N rates get to the RRP rate (3.50%), the more cash investors will send to the Fed. It's a part of the Fed's natural market mechanism to drain cash from the market when rates move closer to the bottom of the target range

Repo GC continues to move lower. I attribute it to Treasury paydowns, hangover from the late April collateral shortage, and some fundamental factor which added cash to the market. It's a toss up going forward

On one hand, rates are trending low and the GSE cash begins entering the market tomorrow. However, on the other, the Treasury just boosted their bill issuance for the last half of May; adding a net $197 billion between now and May 29

I'm not talking about investing in U.S. Treasury Repo, I'm talking about the U.S. Treasury investing in Repo. The topic came up at The Treasury Borrowing Advisory Committee (TBAC) last week

The Treasury General Account (TGA) is the equivalent of a checking account that the U.S. Treasury maintains at the Federal Reserve. Currently, the Fed pays not interest on the cash in the account and the TGA can be significantly large. It currently stands around $850B

The problem is the Treasury borrows money (issues debt) to maintain balances at the TGA, so the Treasury is losing money by borrowing and not getting a return on the money in their "bank" account.

The idea is for the Treasury to invest some cash in Repo. Not only will U.S. taxpayers earn extra, but it will partially sterilize the market. When the TGA grows, there's additional bill supply. That supply can partially funded by Repo transactions and minimize market distortion

For years, the daily fed funds rate traded 8 bps above the bottom of the fed funds target range. At the end of 2025, with all of the funding pressure in the Repo market, the funds rate began moving higher. It peaked at 14 bps above the bottom in December - moving 7 bps in 2025

The O/N fed funds rate dropped one bps last Thursday; down to 3.63%. We believe this is a correction related to the funding pressure last year, which pushed funds higher, and the soft funds this year, accounts for the decline. Note, the rate is now in the middle of the range

The spread between agency MBS collateral and Treasury collateral remains stable. In fact, it actually narrowed in 2026. In 2025, agency MBS averaged 2 basis points above Treasurys. So far in 2026, it's 1.15 bps. This is surprising given the ongoing change in the SOMA portfolio

Beginning on Dec 3, the Fed began letting agency MBS positions mature and reinvesting the proceeds in Treasury bills. This has the effect of adding more agency MBS securities into the market. As of last week, it's down to 1.983 trillion. That's a decline of 72.6B so far

Changes in monetary policy look like a roller coaster ride! The market is pricing a 13% chance of an ease by the July 29 FOMC meeting, but a 39% chance of a tightening by the April 28, 2027 meeting, then rate cuts again beginning in Sept 2027

The REPO GC market traded as low as 3.45% yesterday and soft funding should continue through next week. Between now and May 14, there's $18B net paydowns. However, on the 15th, and through the end of the month, there's a net $124B new Treasurys coming into the market

The Standing Repo Facility (SRP) was established on July 28, 2021 as a reaction to the Repo Panic in September 2019. It was mostly unused until 2025 because Repo rates were stable and stayed within the target range