What Happens to Adjusted NFCI When SOFR Spikes Above Fed Funds?
SOFR spikes signal acute funding stress in Treasury repo markets. What happens when overnight funding rates rise above the Fed target?
How Adjusted NFCI Responds
Scenario Background
SOFR (Secured Overnight Financing Rate) is the benchmark overnight rate for Treasury-collateralized repo markets. It replaced LIBOR as the primary USD funding benchmark. Under normal conditions, SOFR trades within a few basis points of the Fed's target range, anchored by the interest rate on reserves (IORB) at the top and the reverse repo facility (ONRRP) at the bottom.
Read full scenario analysis →Historical Context
SOFR has existed since 2018. The September 2019 spike (SOFR to 5.3%, roughly 300 bps above fed funds) was the most severe funding disruption in the post-2008 era. Drivers included corporate tax payments draining cash, Treasury auction settlements absorbing reserves, and structural reserve scarcity from QT. The Fed responded with overnight repo operations totaling $75 billion, eventually expanding to $120 billion, and announced resumption of balance-sheet growth within weeks. Other SOFR stress ep...
What to Watch For
- •Bank reserves (WRESBAL) declining toward $3 trillion or below
- •Reverse repo (RRP) balances approaching zero
- •Quarter-end dates (March, June, September, December) for periodic stress
- •Treasury auction settlement dates draining reserves
- •Standing Repo Facility usage increasing (Fed intervention signal)
Other Assets When SOFR Spikes Above Fed Funds
Other Scenarios Affecting Adjusted NFCI
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