Archive · 12 Sep 2025
US Funding Markets Face Volatility Amid Rising Borrowing Costs
Imagine the money market is like a bank for banks.
For a long time, it was easy and cheap for banks to borrow money from each other.
But now, it's getting more expensive.
The government needs more cash, and the Federal Reserve is changing its rules.
This means banks might have less money to lend, which could cause interest rates to jump up quickly, like they did in 2019.
Experts are worried about this, but the government has a backup plan to help banks if things get tough.
If the situation doesn't improve, it could impact how businesses and people borrow money and it might make the Federal Reserve change some of its plans.
US funding markets are experiencing rising borrowing costs, raising concerns for investors and policymakers.
Interest rates on short-term financing are increasing as the Treasury rebuilds its cash and the Fed tightens its balance sheet.
Traders anticipate a possible funding shortage next week due to auction settlements and corporate tax payments.
Elevated funding costs are new territory after years of steady rates since the 2008 financial crisis.
The Fed has tools to manage volatility, but persistently high rates pose challenges for the central bank.
- Who
- US funding markets, banks, asset managers, and the Federal Reserve
- What
- US funding markets are entering a new phase of higher borrowing costs and increased volatility.
- When
- Since the beginning of September and potentially as soon as next week.
- Where
- US
- Why
- Due to rising interest rates, the Treasury rebuilding its cash pile, and the Federal Reserve tightening its balance sheet.
- Overnight Rates
- Climbed above the Fed’s target rate in early September
- Repo-Federal Funds Spread
- Widest since end of April at 11.5 basis points
- Bank Reserve Balances
- Around $3.15 trillion
- Fed's SRF Usage
- Spiked at end of June to biggest since permanent in July 2021
- Ample Reserves
- Estimated at $2.7 trillion by Fed Governor Christopher Waller