Now that we’re firmly into 2025, it’s crucial to reflect on the significant fluctuations observed in the Secured Overnight Financing Rate (SOFR) and U.S. Treasury overnight repo rates during the close of 2024. These movements underscore the persistent liquidity challenges that can emerge as the year concludes.

In late November 2024, SOFR experienced a notable surge, reaching 5.39% on December 1st—the highest since its inception in April 2018.

This spike was largely attributed to increased demand for liquidity, driven by an increase in U.S. Treasury yields that heightened the attractiveness of holding government bonds. Consequently, investors sought financing through repo markets, intensifying pressure on overnight rates.

This pattern of elevated rates persisted through December, with SOFR peaking at 5.4% on December 28th.

Such year-end volatility is not unprecedented; it often results from financial institutions adjusting their balance sheets for regulatory compliance, leading to reduced participation in repo markets and, subsequently, tighter liquidity conditions.

When I was trading for major banks, I consistently documented year-end market behaviours to identify patterns and enhance future strategies. This practice proved invaluable in anticipating and navigating the liquidity constraints that frequently arise during this period.

Interestingly, while peak stress was observed at the end of November, conditions began to normalise as December progressed, with rates stabilising by the 31st. This reversion suggests that, despite interim volatility, the market possesses mechanisms to self-correct as participants adjust to prevailing conditions.

The 2024 year-end fluctuations serve as a pertinent reminder of the importance of meticulous liquidity management and the need for robust strategies to mitigate funding pressures. As we advance into 2025, staying vigilant and prepared for similar episodes will be essential for maintaining market stability and ensuring operational resilience.

I invite you to share your experiences and insights on managing year-end liquidity challenges. What strategies have you found effective in navigating these turbulent periods? Let’s continue the conversation to collectively enhance our industry’s resilience.

SecFin Solutions

SecFin Solutions Education and Consulting Services
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