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Whether the S&P 500 can extend last week’s rally will be the big question, and it would seem the path forward may be more challenging. Now that volatility metrics have fallen back towards their recent lows, the VIX 1-Day — which, when inverted, often tracks the S&P 500 more closely than the VIX itself — now sits around 11, placing it near the lower end of its historical range. It is possible it opens closer to 8 on Monday, but at this stage, there is not much room for it to fall further.
Given that limited downside, the volatility tailwind that has supported the market through the holiday week is unlikely to be as strong in the days ahead. With a substantial amount of economic data on the calendar, it is quite possible that the VIX 1-Day begins to move higher again as event risks return.
Additionally, we saw very poor trading conditions over the past week, with the top of the book on the S&P 500 E-minis thinning out and the spread between the bid and the ask widening considerably. This likely played a major role in the week’s trading action as well. It is therefore quite possible that, as conditions normalize this week, those pockets of thin liquidity will begin to fill in and the bid–ask spreads will narrow somewhat.
These poor trading conditions in the S&P E-minis also pushed trading costs higher, making execution extremely expensive and well above levels seen over the past month. This again likely played a significant role in what we have been seeing in the market. When you combine that with volatility levels being reset, it suggests there simply wasn’t enough liquidity across the market to maintain a level, balanced trading environment.
On top of that, Monday brings an $84 billion Treasury settlement, following the $52 billion settlement on Friday, 28 November. This has already pushed overnight funding rates sharply higher. The average repo rate on Friday was 4.09%, suggesting the SOFR rate on Monday morning will likely creep higher from its 4.05% level and result in even firmer overnight funding conditions.
However, these pressures should begin to ease as we move through the week and the month-end effects fade. The Treasury also has two paydowns scheduled, which will add some liquidity back into the system — roughly $11 billion on the 2nd and about $7 billion on the 4th. So I would think that SOFR falls back towards the middle of the Fed’s targeted range by mid-week, and usage of the standing repo facility fades.
Additionally, last week we saw BTIC adjusted S&P 500 Total Return futures (EFFR) for December 2026 decline to 76.5 after peaking around 86.5 in mid-September. If this divergence with the S&P 500 cash index continues, it will be worth noting, as we have seen this bearish divergence before.
Additionally, the BTIC-adjusted S&P 500 Total Return for SOFR fell to 73 from around 85 at the same time.
Typically, when the cost of equity financing declines, repo demand eventually drops, and equity prices follow suit.
Also, equity repo is tied to daily Treasury volumes, and when Treasury repo activity rises, equity repo volumes fall, and vice versa. Below is a chart that shows the 10-day moving average of Treasury repo volume at DTCC.
More importantly, Treasury repo activity increased towards the end of last week, and we will need to watch to see if it continues to rise.
Anyway, lots to digest this week, and it will be exciting to find out if the pieces are falling into place. That’s for sure.
Mike
Glossary by ChatGPT
Bid–Ask Spread – The difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept.
BTIC (Basis Trade at Index Close) – A futures trading mechanism that allows traders to execute at a price tied to the official closing level of an index.
DTCC (Depository Trust & Clearing Corporation) – A financial services company that provides clearing, settlement, and data services for various securities transactions.
E-minis – Electronically traded futures contracts that represent a fraction of the value of standard futures contracts.
EFFR (Effective Federal Funds Rate) – The weighted average interest rate at which banks lend reserves to each other overnight.
Equity Repo – A repurchase agreement in which equities are used as collateral for short-term borrowing.
Repo Rate – The interest rate charged in a repurchase agreement, where securities are sold with an agreement to repurchase them later.
SOFR (Secured Overnight Financing Rate) – A benchmark interest rate for overnight loans backed by U.S. Treasury securities.
Standing Repo Facility – A Federal Reserve tool that provides overnight loans to counterparties in exchange for Treasury collateral.
Treasury Paydown – A reduction in the supply of Treasury securities when the government redeems more debt than it issues.
VIX 1-Day – A volatility index measuring expected S&P 500 volatility over a one-day horizon.
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.
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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.
Assessing Whether Settlement Signals Still Hold - Advanced Topics
Mott Capital's Market Chronicles November 28, 2025 5:38 PM