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Stocks finished the day lower, with the S&P 500 dropping about 50 basis points. Most of the session was driven by volatility selling, with the index falling around 60 to 70 basis points at the open and the VIX spiking to about 18. From there, the VIX moved steadily lower throughout the day, eventually settling in the 16 to 17 range. Once that early volatility spike was fully reset, the equity market essentially stalled and ultimately traded lower into the close, giving back most of the gains seen earlier off the opening low.
Of course, today was a Treasury settlement day, with about $84 billion settling, which led to significantly tighter overnight financing conditions, with the DTCC-averaged overnight repo rate averaging 4.14%. This likely means we’ll see SOFR move even higher tomorrow, from the 4.12% published this morning for Friday’s trade date.
Not only did SOFR rise on Friday, but the TGA also increased from $899.7 billion on the 26th to $956 billion as of the 28th. When we think about what that implies, it suggests reserve balances have likely fallen as well, and it’s quite possible they’ve dropped back into the low $2.8 trillion range, given the amount of issuance and the volume of settlements over the past couple of trading sessions.
The 30-year Treasury rate also rose nearly 8 basis points on the day to 4.75%, and it has formed what appears to be an inverse head-and-shoulders pattern over the past couple of trading sessions. On top of that, it seems to have broken out of a falling wedge pattern, with the RSI turning decisively higher and breaking its downtrend—suggesting momentum has shifted more bullish for rates. If this pattern completes, the 30-year rate could climb back toward 5%, retracing the decline that began on September 3rd.
Meanwhile, the Japanese 5-year rate rose 5 basis points overnight to 1.37%, and it now appears to be in a position to move even higher—potentially toward 1.55%, which is the next major technical resistance level on the weekly chart, dating back to June 2008.
Finally, BTIC S&P 500 total-return adjusted interest rate futures for the effective funds rate fell again on the day, dropping to 75 basis points for the December 2026 contracts. Most equity financing rate contracts were lower today. This is likely a reflection of the tighter liquidity conditions we’ve been seeing in the overnight funding market and may also indicate that equity repo financing is beginning to weaken.
Have a good one.
MIke
Glossary by ChatGPT
Basis points — A unit equal to one-hundredth of a percentage point used to quantify changes in interest rates or yields.
BTIC S&P 500 total-return adjusted interest rate futures — Futures contracts that reflect expectations for the effective federal funds rate embedded in equity index financing.
DTCC-averaged overnight repo rate — The average secured overnight borrowing rate reported by the Depository Trust & Clearing Corporation.
Falling wedge pattern — A technical formation characterized by narrowing downward price action that can indicate a potential bullish reversal.
Inverse head-and-shoulders pattern — A bullish chart formation signaling a potential trend reversal higher following a downtrend.
Reserve balances — Bank deposits held at the Federal Reserve that support liquidity conditions and payment operations.
RSI (Relative Strength Index) — A momentum indicator that tracks the speed and magnitude of price movements to assess trend strength.
SOFR (Secured Overnight Financing Rate) — The benchmark rate for overnight secured borrowing backed by U.S. Treasuries.
TGA (Treasury General Account) — The U.S. Treasury’s primary cash account at the Federal Reserve used to manage government receipts and payments.
Treasury settlement day — The scheduled date when newly issued Treasury securities are exchanged for cash, affecting system liquidity.
Volatility selling — Trading activity that reduces implied volatility by selling volatility-linked instruments or derivatives.
Disclosure
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
Subscribe to receive this FREE daily commentary directly in your email
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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