Zhi Tong Cai Jing·2025-09-16 01:32Core Viewpoint - Wall Street strategists are divided on whether the U.S. financing market will become more accommodative in the coming months, primarily due to increased volatility in overnight borrowing costs [1] Group 1: Market Dynamics - A series of events is driving up short-term interest rates, including the U.S. Treasury issuing more short-term bonds to rebuild cash reserves and the Federal Reserve reducing its balance sheet [1] - The use of key overnight lending tools by the central bank has dropped to nearly zero, raising investor concerns about the sharp rise in borrowing costs [1] - The Secured Overnight Financing Rate (SOFR) has been above the Federal Reserve's target rate since late August [1] Group 2: Divergent Views from Major Banks - JPMorgan, led by Teresa Ho, expects overnight rates to ease by year-end and recommends traders to buy December SOFR futures while selling equivalent federal funds futures [3] - JPMorgan anticipates the spread between SOFR (currently at 4.42%) and the 30-day federal funds rate (currently at 4.33%) to narrow by the end of 2025 [3] - Citigroup, led by Jason Williams, believes financing costs will remain high until year-end and suggests traders short December SOFR contracts relative to federal funds [4] Group 3: Future Projections - Citigroup expects SOFR to gradually rise in the coming months, citing guidance from the Treasury regarding increased Treasury bill auction sizes in October [4] - Barclays has exited a position betting on a narrowing spread between September SOFR and federal funds, indicating ongoing upward pressure on financing costs [4] - Morgan Stanley strategists believe market conditions may ease as soon as next month, suggesting a long position on the SOFR relative to federal funds spread for October 2025 [4] Group 4: Consensus on Historical Context - Both JPMorgan and Citigroup agree that the situation from September 2019, when financing costs surged and the Federal Reserve injected hundreds of billions into the financing market, is unlikely to repeat [5]