Surge in Secured Overnight Financing Rate Raises Concerns of Liquidity Stress in US Banking System

The rise in the secured overnight financing rate (SOFR) on Monday suggests liquidity stress in the US banking system, which could be a concern for markets in the short term. This could also negatively impact risky assets such as bitcoin. The increase in the SOFR indicates tighter liquidity and constraints in overnight borrowing, which was last observed in September 2019. Some experts believe that the spike in the SOFR may recede in the coming days, but for now, it could weigh on markets. The head of international distribution at FRNT Financial, David Brickell, suggests that the Fed will need to end quantitative tightening and restart liquidity injections to support the financial system.