SOFR trades 12bp below FFR

The Federal Reserve Bank of New York’s latest reference-rate data showed the Secured Overnight Financing Rate at 3.53% for May 18, while the effective federal funds rate printed 3.63%, leaving SOFR 12 basis points below EFFR. The gap has drawn attention across markets because SOFR is a Treasury-collateralized overnight repo rate, while EFFR reflects unsecured federal funds transactions. New York Fed data also showed SOFR volume at $3.159 trillion on May 18, compared with $118 billion in effective fed funds volume. Market commentary on May 19 tied the widening spread to conditions in Treasury collateral and repo funding rather than to a change in the Federal Reserve’s target range, which remained 3.50% to 3.75%. ### Why are traders focused on a 12-basis-point gap? The New York Fed defines SOFR as a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. The same institution defines EFFR as a volume-weighted median of overnight federal funds transactions reported on the FR 2420 money markets report. Those are different markets with different plumbing, so the two rates do not move in lockstep every day. (markets.newyorkfed.org) A May 19 post from YieldSearcher said SOFR had moved 7 basis points lower over the prior week and was trading 12 basis points below fed funds. That post became an anchor for broader discussion about whether repo conditions had shifted from cash scarcity toward collateral scarcity. The New York Fed’s published data support the level difference cited in the post for the latest available business day. (newyorkfed.org) ### What does SOFR actually measure in this setup? The New York Fed says SOFR includes transactions from the Broad General Collateral Rate plus bilateral Treasury repurchase agreement transactions cleared through FICC’s delivery-versus-payment service, after filtering out part of the activity considered “specials.” That matters because repo rates can fall when demand for particular Treasury collateral is strong, even if the Federal Reserve’s policy target has not changed. (markets.newyorkfed.org) The May 18 secured-rate data showed TGCR at 3.52%, BGCR at 3.52%, and SOFR at 3.53%. Those readings clustered below the 3.63% EFFR print for the same date, indicating the softness was not isolated to one secured benchmark. ### Why are posts talking about collateral scarcity? Online posts in the last 48 hours linked the SOFR-EFFR gap to scarcity in Treasury collateral and stress in repo-market plumbing. (newyorkfed.org) The factual basis for that argument is that SOFR is a secured Treasury repo rate, so unusual demand for collateral can pull it below unsecured overnight benchmarks. The New York Fed’s methodology notes explicitly tie SOFR to Treasury-collateralized borrowing, which is why traders use it as a readout on repo conditions. (markets.newyorkfed.org) CME Group wrote in a 2025 analysis that day-to-day SOFR volatility had increased after the Fed began cutting rates in September 2024. That note does not address the current spread directly, but it shows that recent SOFR behavior has been more dynamic than in earlier post-launch periods. (newyorkfed.org) ### What about the leverage claims around the Treasury basis trade? Social-media posts also cited leverage of 50-to-100 times in Treasury basis trades, compared with 31 times in 2008 mortgage exposure. I could not independently verify those specific leverage figures from a primary official source in the material reviewed, so they should be treated as market commentary rather than confirmed data. (cmegroup.com) What is verifiable is that repo financing can amplify positions because it allows investors to fund Treasury holdings in the secured market. DTCC’s description of GCF Repo says the product was developed so dealers could trade general collateral repos throughout the day without trade-by-trade delivery-versus-payment settlement. That infrastructure detail helps explain why traders watch repo benchmarks closely when concerns about leverage and collateral availability surface at the same time. (newyorkfed.org) ### Where should readers watch next? The New York Fed says it publishes SOFR at about 8:00 a.m. Eastern time and EFFR at about 9:00 a.m. Eastern time for the prior business day. The next checkpoints for this story are the daily reference-rate releases and whether the SOFR-EFFR gap narrows or persists in subsequent New York Fed prints. (newyorkfed.org) (dtcc.com)