79 billions liquidity withdrawn, government bond settlement coincides with tax day, resulting in a rise in overnight interest rates

⑴ Driven by the $790 million capital outflow from the settlement of 3-year, 10-year, and 30-year US Treasury bonds by the US Treasury, combined with the pressure of the June 15 tax day, the overnight general collateral repo rate opened up 2 basis points to 3.72%.⑵ On Tuesday, $210 million in Treasury bill repayments will inject cash into the market, potentially reversing the upward pressure. Another $3 billion repayment on Thursday will add more liquidity, and rates may fall below the 10-day moving average starting point of 3.67%.⑶ For the remainder of the day, the rate is expected to fluctuate between 3.72% and 3.67%. The $790 million outflow has been fully anticipated, so it will not be surprising if the overnight rate declines before Tuesday’s repayment.⑷ In the repo market, the premium on 2-year Treasury bonds has widened to 11 basis points below the general collateral repo rate, while the premium on 20-year bonds remains stable at 25 basis points.⑸ Federal funds futures pricing indicates a 96% probability that the Federal Reserve will keep rates unchanged at its June meeting, while the 0x3 OIS contract pricing suggests only a 9% chance of a 25 basis point rate hike within the next 90 days.⑹ After the peace agreement was reached, oil prices fell 5.3%, SOFR futures rose across the board by 1 to 5 basis points, and sentiment in the short-term interest rate market has become more subdued.