Key Fed Fund Rates Trade Gains Popularity Amid Repo Volatility

Traders are increasingly turning to US interest-rate futures where they are wagering on changes between repo rates and the federal funds rate as money-market stress persists.

There was a wave of new activity Monday in the one-month SOFR-fed funds basis trade, which bets on future spread movements between the Secured Overnight Financing Rate — a benchmark rate based on the cost of borrowing against Treasury securities — and those referencing the fed funds rate, the weighted average of overnight rates. One side of the basis trade is the SOFR rate and on the other is the fed funds effective ...