SOFR-Fed Funds rate spread sees heavy buying after record-setting trade

On July 6th (the day after Nonfarm Payrolls), the trading volume of the July SOFR-Federal Funds Rate spread approached 60,000 contracts, with capital flow clearly favoring the spread buyers. The transaction price stood at -1.25 basis points; as of 8:40 a.m. New York time, the largest single trade of the day was 10,000 contracts. A block trade of 60,000 contracts on July 2nd set a historical record for this spread. Growing interest in July and August spread positions is driven by the potential impact of short-term Treasury bill issuance in July on SOFR; divergent views among major banks are fueling increased trading activity.