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The Secured Overnight Financing Rate—a key short-term borrowing rate—has risen above normal levels due to quantitative tightening and the government shutdown, but these pressures should ease soon and prevent a broader liquidity crisis.

What caught our eyes this week

Hints of liquidity constraints in repo markets

The Secured Overnight Financing Rate (SOFR) is a market-based measure of the interest rate for short-term borrowing known as repurchase agreements, or repos, which are backed by U.S. Treasury securities. It covers nearly $2.5 trillion of daily borrowing, almost 25 times the volume of the federal funds market. Typically, SOFR trades within the range of the fed funds target rate. When SOFR moves above that range, it could be a sign that cash is struggling to get through the financial system to those who need it—which can be dangerous for those who rely on that leverage. Lately, SOFR has poked above the fed funds rate and struggled to fall with it after rate cuts. This is likely due to many factors—two of which are quantitative tightening (QT) and the government shutdown. We have an end date for QT (December 1), and it now appears we are moving toward an end to the shutdown. This, plus a backstop from the Fed’s Standing Repo Facility, should keep friction in funding markets from spilling over to a full-blown liquidity crisis.

SOFR vs. Federal Funds Target Range

CHART OF THE WEEK: Cerity Partners, New York Fed, FRED, as of 11/06/2025

Past performance does not guarantee future results.

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