Rates

SOFR-OIS / SOFR-EFFR Spread

The spread between secured (SOFR) and unsecured (OIS/EFFR) overnight rates — a real-time gauge of funding stress in the repo market.

Definition

SOFR is collateralized by Treasuries; OIS and EFFR are unsecured. In normal conditions the spread is tight and stable. When repo collateral becomes scarce or balance-sheet capacity binds (quarter-ends, large settlements), SOFR can spike above unsecured rates — the September 2019 repo episode being the canonical case.

A persistently elevated SOFR spread signals reserve scarcity well before it shows up in headline data.

Why it matters

SOFR spread is the first place reserve scarcity appears. It led the 2019 Fed pivot from QT to balance-sheet expansion.

Worked example

September 2019: SOFR spiked from ~2.2% to ~5.25% intraday on a tax-payment + Treasury-settlement collision. The Fed restarted T-bill purchases within weeks.

Frequently asked

Why do quarter-ends widen the spread?⌄
Banks shrink balance sheets for reporting, reducing repo intermediation capacity right when collateral supply is heavy.
Does a small spread mean liquidity is fine?⌄
Mostly, but persistent small upward drift is the warning sign — the 2019 episode was preceded by months of creeping spreads.
Is SOFR going to replace LIBOR fully?⌄
Yes, for US-dollar contracts; LIBOR ceased publication in 2023.
What's the Standing Repo Facility?⌄
A Fed backstop introduced after 2019 that caps repo rates by lending against Treasuries — limits the upside in SOFR spikes.

Related terms

Reverse Repo (RRP)

Rates

Dollar Liquidity

FX

QT (Quantitative Tightening) Mechanics

Policy

FX Cross-Currency Basis

FX

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