US Rates Watch: Repo clearing & SOFR: +1-2bps

Research evidence excerpt

US Rates Watch: Repo clearing & SOFR: +1-2bps

vs payments

We calculate the expected SOFR impact using this range of bi-lateral repo estimates.

Future inclusion of bilateral activity will likely see SOFR +0.05 to +0.3bps (Exhibit 2). The CCP = central clearinghouse

overall impact is small but directionally sees SOFR rise.

UST = US Treasury

FICC costs = repo higher w/ balance sheet efficiency

OFR = Office of Financial ResearchMandated clearing will also see more FICC activity & greater dealer sheet efficiency.

Dealers are likely to continue paying up for cash in a more efficient manner. FF = federal funds rate

MMF in FICC currently pick 1.2bps vs standard tri-party (Exhibit 3). Today roughly 50% CIL = collateral-in-lieu

of ON UST MMF repo is in FICC. Once all repo is fully cleared SOFR will rise a further

+0.6bps. We expect MMF to be gradually phased in prior to next June. Note: central

clearing will likely reduce repo reporting date spikes, which biases the estimate lower.

Transition to collateral-in-lieu (CIL) will likely further add upward pressure to SOFR. We

might estimate the impact to be 1bp over time. CIL has no explicit cutover date & will

happen over time. Market structure detail here: Repo structure in ’26 => sheet capacity.

Bottom line: we expect a total SOFR impact from repo central clearing at end June ’27

of 1-2bps. SOFR impact comes from (1) larger set of bi-lateral trades in SOFR (2)

dealers paying up for more sheet efficient cash. Our estimate is in-line with SOFR/FF

May-July ’27 spread at 0.5 to 1.5bps & currently seems fairly priced to us (Exhibit 4).

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