Plumbing Notes: A Global Compression

Summary

In this brief update, the host explains how the Federal Reserve’s recent liquidity injections have compressed the SOFR‑FF basis, pushing overnight SOFR rates to just a few basis points below the interest on reserve balances (IORB). Major banks, led by JPMorgan, are swapping reserves for Treasury securities and holding extra reserves to manage unrealized losses, which further tightens the market. The Fed hopes the low‑rate sweet spot persists, as additional rate cuts would reduce banks’ excess reserves but encourage them to provide liquidity at tighter spreads, supporting both market stability and a weakening macro outlook.