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In the last week, the USD SOFR interest rate swap market has been influenced by the same thing that always matters in the short end of rates: how easy (or hard) it is to borrow cash against US Treasuries in the repo market. That’s important because SOFR is basically a repo rate – it comes from the cost of overnight secured borrowing.

So if repo conditions change, SOFR and short dated SOFR swaps can react quickly. Recent market activity has been strong, with more trading and hedging across rates markets. When people hedge more, markets move faster and pricing can change quickly across the curve, especially in uncertain weeks.

So what does this mean for SOFR swaps?

Continue reading here.

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