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Plumbing Notes: A Global Compression

Concoda • 540 implied HN points • 01 Feb 26
💰 Finance Treasury Markets
  1. The Fed’s bill buying has compressed the SOFR–fed funds basis and pushed overnight dollar funding rates into a narrow ‘sweet spot’ a few basis points below interest on reserves.
  2. Large banks are swapping reserves into Treasuries and keeping extra reserve cushions because of unrealized losses and outflow risk, so big dollar clearers are less willing to step in as backstops.
  3. Further Fed cuts will likely reduce excess reserves but make banks more willing to lend at tighter spreads, helping contain overnight rates and supporting a weakening macro outlook.

Plumbing Notes: Repo 101

Concoda • 594 implied HN points • 25 Jan 26
💰 Finance Treasury Markets
  1. A repo is a short-term cash loan secured by securities; GC (triparty) repos use pooled high-quality collateral on BNY’s triparty platform, while SC (DVP/bilateral) repos move specific securities over Fedwire for trading needs.
  2. The market is split by how trades clear and settle: cleared interdealer venues go through the FICC (GCF and DVP), uncleared segments (triparty and NCCBR) serve different counterparties, and sponsored/agent clearing services are shifting activity toward central clearing to reduce systemic risk.
  3. Four overnight benchmarks capture key funding lanes—o/n TPR (triparty), o/n GC (GCF), o/n DVP (cleared DVP), and o/n NCCBR (uncleared bilateral)—and dealers routinely borrow in one segment (often from money funds) and lend across the others.

Plumbing Notes: The Great Compression

Concoda • 551 implied HN points • 15 Dec 25
💰 Finance Treasury Markets
  1. The Fed has stepped in to tame money-market volatility by buying short-term U.S. Treasuries and injecting reserves sooner than expected, running roughly $40 billion a month in these operations.
  2. Those actions will compress overnight rates and short-term spreads as reserves move back toward near-abundant levels, but because the purchases target ultra-short bills rather than longer-term bonds, they won’t be a broad easing of financial conditions or sharply lower long-term rates.
  3. The goal is to build a reserve cushion to protect against volatile Treasury General Account flows and tax-day outflows, reducing the chance of disruptive interbank strains.

The Fed's New Target: Part I

Concoda • 281 implied HN points • 10 Jan 26
💰 Finance Treasury Markets
  1. The Fed is moving away from targeting an unsecured overnight fed‑funds rate and toward a secured repo benchmark as its main policy rate to reduce volatility and strengthen control over money markets.
  2. The Fed has started large reserve injections and new permanent open‑market operations that have compressed overnight money‑market rates and prevented year‑end plumbing stress.
  3. As a result, banks’ balance sheets are set to expand, the repo market will become central to rate setting, and the unsecured interbank market’s role is likely to shrink.

Infographics: How Liquidity Requirements Create Demand For Reserves/U.S. Treasuries

Concoda • 340 implied HN points • 24 Dec 25
💰 Finance Treasury Markets
  1. Liquidity rules push big banks to hold safe, liquid assets like reserve balances and U.S. Treasuries, which creates steady demand for those assets.
  2. Large banks face intraday liquidity needs that force them to keep enough reserves available to settle payments and manage cash flows during the day.
  3. Visual diagrams help show how those intraday requirements link to central bank policy and Treasury demand, clarifying why reserves matter for markets.
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