Year-End Repo Rate Surge Signals Rising Volatility in U.S. Financing Market

As 2024 approaches, the U.S. financing market is experiencing a significant uptick in costs, causing concerns among traders and analysts alike. The end-of-year overnight general collateral repurchase agreements, specifically U.S. Treasury-backed loans, are witnessing a surge in rates. This escalation is prompting market participants to brace for increased volatility as major players withdraw due to end-of-year regulatory pressures.

This marks an unusually early reflection of year-end concerns in pricing, according to Jan Nevruzi, an interest rate strategist from TD Securities. Nevruzi noted, “There are clear bottleneck issues that are expected to intensify as we approach the year's end.”

Data from Curvature Securities highlights that overnight repo rates for the period between December 31 and January 2 soared to 5.60% last week before slightly easing to 5.45%. This figure remained significantly higher than earlier in the month, which saw rates at 4.85%. Concurrently, the repurchase rates backed by mortgage-backed securities also climbed, reaching 5.69% on Wednesday, surpassing the rates observed earlier in November.