The overall US Treasury repurchase market remains stable, with funding rates slightly easing but demand increasing ahead of the long weekend.

⑴ The US overnight repurchase agreement general collateral (GC) rate opened Thursday at 3.65% to 3.64%. Despite a $30 billion Treasury settlement outflow on the day, funding rates softened only slightly due to increased financing demand ahead of the long weekend holiday. ⑵ The current GC rate remains below its 10-day moving average, with settlement-related fund flows and government-sponsored enterprise funds continuing to circulate within the system, providing additional liquidity support to the market. ⑶ Newly issued government bonds of various maturities are trading below the GC rate in the repo market, with the two-year variety showing the most notable performance, dropping by 14 basis points. This reflects heavy market bets on yield curve flattening after the Federal Reserve’s hawkish stance. ⑷ Term repo funding rates have all moved higher: the one-month rate is up 1 basis point, the two-month up 4 basis points, and the three-month rate has surged by 6 basis points, in line with market pricing for a sharp increase in the probability of a September rate hike after the Federal Reserve meeting. ⑸ Overnight index swap rates indicate the spread between the GC rate and the excess reserves rate is 1 basis point, and the spread with the overnight reverse repo rate is 16 basis points, suggesting that the short-term funding market as a whole is operating steadily. ⑹ Secured overnight financing rate futures continue to decline, with the curve flattening further. The white pack contract has already fully priced in a 25 basis point rate hike in September, up from a 94% probability after the Federal Reserve meeting, while the December contract has priced in a second rate hike.