The U.S. repo market starts stable as quarter-end cash returns curb overnight rate spikes

⑴ The general collateral repo rate in the US opened unchanged at a bid level of 3.65%, 2 basis points lower than the 10-day average. Currently, there are no settlement frictions. Quarter-end book closing activities and pre-holiday hedging strategies will release cash, making a sharp rise in overnight rates unlikely.⑵ It is expected that during today's trading session, repo rates will fluctuate in the 3.60% to 3.65% range. Rates are likely to strengthen before the close to cope with the $59 billion outflow from Tuesday's settlement. Quarter-end fund movements may be rather extreme, and it would not be surprising if tomorrow's opening rate exceeds 3.70%.⑶ Currently, repo rates for all US Treasury maturities are below the GC benchmark: 7 basis points lower for the two-year, 8 basis points lower for the ten-year, and 2 basis points lower for the thirty-year. GCF and MBS repo rates are at 3.65% and 3.68% respectively. The spread between the GC rate and the excess reserve rate is zero, while the spread with the overnight reverse repurchase agreement rate is 15 basis points.⑷ Federal funds futures price in a 69% probability that the Federal Reserve will keep rates unchanged at the July meeting. Repo rates across all maturities are 10 to 16.3 basis points higher than the 10-day average of 3.63%. SOFR futures fell by 1.5 to 2.5 basis points compared to Friday. The 1% rebound in crude oil to $70 places some pressure on the money market.