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Introduction: The recurrence of the liquidity crunch
In November 2025, the U.S. financial system once again showed signs of liquidity pressure, especially the fluctuations in the repo market (repo market), which has become the focus of attention.As the core “pipeline” of the U.S. monetary system, the repo market has a daily trading volume of more than $3 trillion and is a key channel for financing banks, money market funds, and hedge funds.Recently, the spread between the Secured Overnight Financing Rate (SOFR) and the Federal Reserve Reserve Balance Rate (IORB) has widened to more than 14 basis points, hitting a high since the 2020 epidemic liquidity crisis.This phenomenon is not an isolated incident, but is closely related to the Fed’s quantitative tightening (QT) process, the Treasury General Account (TGA) balance fluctuations, and the accumulation of highly leveraged basis trades.
According to data from the New York Fed, as of November 12, 2025, the average SOFR was 3.98644%, which was approximately 8.6 basis points higher than IORB (3.90%).The widening of this spread shows that the cost for banks to obtain overnight funds has increased, and the liquidity has shifted from “abundant” to “plentiful” or even “scarce”.A succession of statements from Fed officials have further reinforced this concern: From unusual comments by Chairman Jerome Powell to warnings from former and current managers of the System Open Market Account (SOMA), the monetary authority is closely monitoring potential risks.If the pressure persists, it could force the Fed to restart asset purchases to maintain financial stability.
This article will analyze the causes of repo market pressure, key timelines, the impact of related transactions, and comments from market participants based on the latest data and official reports.Through objective analysis, the potential impact of this phenomenon on the U.S. and even the global financial system is revealed.
Causes of repurchase market pressure: double squeeze from QT, TGA and fiscal financing
The core function of the repo market is to provide short-term secured financing, mainly using U.S. Treasury securities as collateral.In 2025, the pressure on this market will stem from the superposition of multiple factors.First of all, since the QT launched by the Federal Reserve in June 2022, it has reduced the size of its balance sheet by approximately US$2.19 trillion.As of November 2025, the total assets of the Federal Reserve have fallen to approximately US$6.8 trillion, and bank reserve balances have dropped from a peak of US$3.5 trillion to US$2.85 trillion.This reduction directly reduced the supply of liquidity in the system, leading to a surge in banks’ borrowing needs in the repo market.
Second, abnormal fluctuations in Treasury General Account (TGA) balances exacerbated liquidity withdrawals.The TGA is the Treasury Department’s “checking account” with the Federal Reserve, which is used to manage tax revenue and government spending.In 2025, as spending was delayed due to the government shutdown, TGA balances surged from approximately $890.8 billion at the end of September to $924.9 billion on November 3, an increase of approximately $137.1 billion from the previous week.Every $100 billion increase in TGA balance is equivalent to withdrawing an equal amount of reserves from the banking system, further pushing up the repo rate.The New York Fed report shows that the TGA reconstruction process has caused the reserve/GDP ratio to drop from 15% at the peak of the epidemic to about 8%, close to the historical warning line.
In addition, the expansion of fiscal deficits and surge in government debt issuance are another key driver.In fiscal year 2025, the U.S. federal deficit will reach $1.8 trillion, accounting for 6% of GDP.To finance the gap, the Treasury Department issued a record amount of short-term Treasury bills (T-bills), with the issuance size expected to exceed $1 trillion in November.This short-term debt needs to be financed through the repo market, but dwindling bank reserves have made it difficult for primary dealers to absorb all the supply, thus pushing up SOFR.
The latest data shows that on November 5, 2025, the SOFR-IORB spread reached 22 basis points, doubling from the previous month.The Triparty Repo Rate (TGCR) also shifted from an average of 8-9 basis points below the IORB in September to slightly above the IORB in October.These indicators reflect that the transition of liquidity from “abundant reserves” to “ample reserves” has caused friction.
Timeline: From Powell comments to SOMA manager alert
The evolution of repo market pressure can be traced back to October 2025, forming a clear timeline and highlighting the formation of consensus within the Fed.
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October 14, 2025
Fed Chairman Powell made a rare mention of the repo market and SOFR spreads during a speech at the National Association of Business Economics (NABE) conference.He noted “a gradual tightening of liquidity conditions, including an overall move higher in repo rates, as well as clear but temporary pressures on specific dates”.Powell emphasized that the Fed is monitoring a number of indicators to determine when QT will end.This comment is different from the conventional statements on macro policies in the past, implying that hidden dangers have emerged in the monetary plumbing.The market interprets that QT may end earlier than January 2026.
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October 15, 2025
The Federal Reserve released the “Cross-Border Tracking of Treasury Bond Underlying Transactions” report (FEDS Notes), which revealed that hedge funds have purchased a net US$1.2 trillion in Treasury bonds through underlying transactions since 2022, accounting for 40% of Treasury bond issuance during the same period.The report pointed out that the transaction was partially liquidated in March 2020 due to “significant pressure” in the repo market, but its scale has exceeded the peak in 2019-2020 in recent years, with a leverage ratio as high as 50:1 to 100:1, and a total exposure of approximately US$1.8 trillion.Cayman Islands hedge fund holdings of government debt may be $1.4 trillion higher than official figures.This explains the context of Powell’s comments the day before: the underlying transaction relies on repurchase financing, and if SOFR rises, it may trigger forced liquidations and a sell-off in Treasury bonds.
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October 31, 2025
Dallas Fed President Lorie Logan (former SOMA manager) told a bank conference that “if repo rates don’t soften, asset purchases must return.”Logan emphasized that the recent SOFR above IORB is not a “one-time anomaly” but a signal of changes in reserve conditions.She supports ending QT to avoid market volatility.As the former head of SOMA, Logan’s views are authoritative. She also suggested shifting the FOMC operating target from the federal funds rate to TGCR to better reflect repurchase market dynamics.
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November 12, 2025
New York Fed Executive Vice President Roberto Perli (current SOMA manager) bluntly stated at the 2025 U.S. Treasury Market Conference that “reserves are no longer sufficient.”He pointed out that rising SOFR, increased use of SRF and changes in the elasticity of the reserve demand curve all indicate that reserves are close to “adequate” levels.Paley predicted that the Fed “would not have to wait too long” to initiate asset purchases to maintain liquidity.This is consistent with Logan’s view and reinforces the urgency of policy change.
This timeline is no coincidence but the Fed’s real-time response to liquidity indicators.On the X platform (formerly Twitter), analyst @BullTheoryio posted on November 1 that “liquidity pressure has returned, similar to Q3/Q4 in 2019, which may force the Federal Reserve to restart QE.”Similar discussions recur in posts by @GlobalMktObserv and @TheBubbleBubble, reflecting the market’s consensus on systemic risks.
Underlying trades amplify risk: The hidden dangers of $1.8 trillion in leveraged exposure
Underlying transactions are amplifiers of repo market pressures.The trade involves hedge funds simultaneously going long on spot Treasury bonds and short on Treasury futures, profiting from the tiny price difference between the two.Leveraged financing is mainly realized through the repo market, and the collateral is the government bonds themselves.The Federal Reserve report shows that between 2022 and 2024, Cayman Islands hedge funds purchased US$1.2 trillion in treasury bonds through this transaction, with an extremely high leverage ratio.
Historical lessons are profound: In March 2020, underlying transactions were partially liquidated due to repurchase pressure, causing a sharp shock in the Treasury market, and the Federal Reserve urgently injected liquidity.The current scale is even larger – total exposure is $1.8 trillion, accounting for nearly half of Treasury purchases.If the SOFR spread continues to widen, rising financing costs may trigger a chain of liquidations: funds sell off $1.8 trillion in spot government bonds while covering futures positions, further pushing up yields.
X user @infraa_ posted a summary on November 13: “The underlying transaction size has exceeded the peak in 2019-2020, and repurchase pressure may trigger a sell-off of US$1.8 trillion in government bonds.”Institutions including Citigroup and Barclays warned that the deal was not a “one-off anomaly” but a structural risk.
Fed Tools Response: SRF Usage and Reserve Indicators
In response to stress, the Federal Reserve’s Standing Repo Facility (SRF) has become a key buffer.The SRF allows primary dealers to borrow funds from the Federal Reserve overnight using Treasury securities as collateral, with the lowest bid rate being the federal funds rate ceiling (4.00%).Banks borrowed a record $50.35 billion from the SRF on October 31, 2025, from $22 billion on November 3, and fell to $4.8 billion on November 4.A total of about $125 billion was injected in five days.New York Fed President John Williams said the SRF “fulfilled its responsibilities” but that increased use reflected a scarcity of reserves.
Reserve indicators further confirm the tightening: the ratio of bank reserves to money supply (M2) fell to 13%, close to the level before the regional banking crisis in 2023, which triggered the collapse of three large banks including Silicon Valley Bank.Reverse repurchase (ON RRP) balances were close to zero, only briefly rising to $52 billion at the end of the quarter.The spread between the federal funds rate (EFFR) and the IORB is -7 basis points, but the SOFR-EFFR spread has widened, indicating that the unsecured market is also affected.
Market Commentary: From Concerns to Policy Expectations
The Fed officials’ comments sparked widespread discussion.Logan and Paley stressed that asset purchases may be needed if reserves are “no longer sufficient.”JPMorgan CEO Jamie Dimon warned of “cracks in the bond market.”On the X platform, @ZegoodBanker pointed out, “QT + record T-bill issuance = liquidity pressure, the Fed may need to take action.”@DarioCpx quoted Logan, predicting that “a shutdown of more than 35 days will amplify the repurchase crunch.”
Wall Street institutions are clearly divided.Citigroup said the pressure was “not temporary”, while Barclays said it was “not out of the woods yet.”Goldman Sachs strategists predict that the Fed may turn to “stealth QE” in 2026.However, optimists like @BullTheoryio believe this pressure, similar to 2019, will drive liquidity injections and asset rebounds.
Risks and Outlook: Systemic Shocks and Policy Shifts
If the repurchase pressure continues, it may trigger a domino effect: the unwinding of underlying transactions will push up government bond yields and amplify fiscal financing costs; the scarcity of reserves inhibits credit transmission, exacerbating consumption and corporate defaults (the credit card default rate has reached 11.4%, and the car repurchase rate is close to GFC levels).Global co-movement risks are prominent: Japan’s 10-year yield is approaching a 17-year high, and the Eurozone sovereign bond Dow faces an “explosive” warning from the IMF.
Looking forward to 2026, after the Fed ends QT on December 1, it may gradually purchase assets, with the goal of maintaining the reserve/GDP ratio above 8%.But the challenge is to balance inflation (CPI is still over 2%) and liquidity.High leverage in the market—margin debt is at a record high of $1.1 trillion—increases vulnerabilities.
In short, repo market pressure is a wake-up call for the monetary system and stems from structural imbalances.A prompt response from the Fed can cushion the blow, but if ignored, it will amplify into a full-blown crisis.Investors need to be wary of liquidity asymmetry: the financial core is stable while the peripheral economy is under pressure.
