Equity Funding Implies a Tumultuous Quarter-End

Research evidence excerpt

Equity Funding Implies a Tumultuous Quarter-End

IdeaMIn Why So Soft, Repo?, we discussed the confluence of factors that drove such soft

conditions in Treasury repo markets during late May.

• As shown in Exhibit 2 , this scatter plot helps contextualize current conditions in

Treasury funding by comparing the SOFR – IORB spread in relation to levels of

reserves as a % of total bank assets across different Fed balance sheet regimes.

Current conditions are consistent with prior periods of abundant reserves, with the start

of Fed reserve management purchases in December 2025 dampening pressures in repo.

At the other end of the funding spectrum, pressures in equity funding are only percolating

into quarter-end (for more on the specific drivers, see The Canary in the Coal Mine?).

AXW futures capture the spread between the implied equity financing rate for S&P 500

total return futures and a floating rate, such as SOFR or fed funds.

• As shown in Exhibit 3 , the 1-month AXW futures contract for July 2026 catapulted

to +200bp on Friday, heading into the weekend before quarter-end on June 30.

The fact that 1-month equity financing rates prior to a quarter-end are rapidly nearing

record highs hit ahead of a year-end in December 2024 - the previous equity funding

squeeze episode - encapsulates the degree of equity funding stress (see Exhibit 4 ).

• We show the 10-day moving average to help smooth the roll impact on the front-

month futures contract.

Record equity financing costs, measured by AXW futures, reflect a growing imbalance

between the demand for levered long equity exposure and dealer balance capacity.

Exhibit 3: July 2026 1-month AXW futures contract Exhibit 4: Generic front 1-month AXW futures

since February 23 contract since December 2020

Basis points Basis points