The spread between SOFR and the Federal Reserve's overnight reverse repurchase agreement (RRP) rate has reached its narrowest in six months

According to data from the Federal Reserve Bank of New York, the Secured Overnight Financing Rate (SOFR) on the last trading day (May 21) was reported at 4.26%, the lowest level since December 2022, down from 4.27% the previous day.

This indicates that due to the repayment of U.S. Treasury securities and cash inflows supported by the government, there is ample front-end funding, and the spread between SOFR and the Federal Reserve's Overnight Reverse Repurchase Agreement (RRP) rate has narrowed to 1 basis point, the narrowest since November 20, 2024.

"The repo rate continued to be pressured yesterday, as the weak tone of trading in the repo market at this time of the month is more pronounced than usual," wrote John Canavan, an analyst at Oxford Economics, in a report.

According to ICAP, the overnight GC repo rates were initially 4.30%, 4.29%, and 4.28%, with a bid-ask spread of 4.28%-4.27%.

The effective federal funds rate on the last trading day was reported at 4.33%, unchanged from the previous day