US Rates Watch: Equity funding squeeze = UST funding risk

Research evidence excerpt

US Rates Watch: Equity funding squeeze = UST funding risk

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US Rates Watch

Equity funding squeeze = UST funding risk

Equity financing costs keep rising 29 June 2026

Equity financing costs have continued to rise since our report in early June (see Tale of 2 Rates Research

repo markets). 1m SPTR is trading around FF+170bp, a significant increase from earlier United States

June levels (Exhibit 1). Pressure is not isolated to July; SPTR funding has repriced higher US Rates Research

across the curve, with quarterly expiries also reflecting a higher cost of balance sheet BofAS

(Exhibit 2). Investors are not just paying up for temporary quarter end funding but for Eleanor Xiao

equity financing more broadly. For equity financing basics, see page 2. Rates Strategist BofAS

eleanor.xiao@bofa.com

US rates clients should care b/c higher equity funding can spill over in UST & MBS repo.

Mark Cabana, CFA

Rates Strategist

BofASEquity financing spike = cash / collateral imbalance mark.cabana@bofa.com

Equity funding cost reflects a cash / collateral imbalance exacerbated by dealer frictions.

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Cash = finite amidst relatively fixed dealer balance sheets. Collateral = growing with

higher equity values & large public offerings. Dealer friction = unable to easily shift

across products or regions due to capital / other business constraints. Equity financing SPTR = S&P 500 Total Return

uses different nomenclature but the cash / collateral principles are same as US rates. FF = federal funds rate

Equity funding matters for US FI b/c it risks intermediation crowding out. If funding OI = open interest

continues higher in equities, dealers could potentially shift sheet from FI to equities.

SOFR = secured overnight financing