On 16 September 2019, borrowing cash overnight against US Treasury bonds cost 2.43%. The next day, it cost 5.25%. The Federal Reserve's own target range was 2% to 2.25%.
That market is the repo market. On 1 October 2026, the overnight Treasury repo trades behind its benchmark rate came to $3.07 trillion. Here is how a repo works, who uses it and what happened in September 2019.
What is the repo market? In a repo, one side sells bonds, usually US Treasuries. It agrees to buy them back the next day at a slightly higher price. In effect, it is an overnight loan of cash backed by bonds. The repo market is where these trades happen.
The rate on overnight Treasury repo is called SOFR. It was 3.87% on 1 October 2026, on $3,067bn of trades.
On 17 September 2019, SOFR jumped to 5.25%. The Fed added $53bn of cash that day.
The Fed now sits on both sides of the market. It takes cash at 3.75% and lends it at 4%.
How a repo works
Repo is short for repurchase agreement. Take a bond dealer that holds $100 million of Treasury bonds and needs cash for one night:
Today, the dealer sells the bonds to a money market fund for $100 million.
Tomorrow, the dealer buys them back for $100,010,750.
The extra $10,750 is the interest. At a rate of 3.87%, one night on $100 million comes to $10,750, using the market's convention of a 360-day year.
The fund has lent cash and held bonds as security. If the dealer fails to pay, the fund keeps the bonds. For that reason, the fund often lends a little less than the bonds are worth. That gap is called a haircut.
The same trade has two names. For the side borrowing cash, it is a repo. For the side lending cash, it is a reverse repo.
Who uses the repo market
Typical borrowers of cash:
Bond dealers, who fund their holdings of Treasury bonds.
Hedge funds, which borrow to hold larger bond positions.
Typical lenders of cash:
Money market funds, which need a safe place for cash overnight.
Banks, which lend out spare reserves.
The Fed, when it chooses to add cash.
Trades run through three main channels: tri-party repo, run by the Bank of New York Mellon; GCF repo; and bilateral trades cleared through the Fixed Income Clearing Corporation. SOFR is built from all three. We explain how in SOFR vs LIBOR.
The Fed's role in the repo market
The Fed runs two standing facilities, one on each side:
The overnight reverse repo facility (ON RRP). Money market funds and others lend cash to the Fed at 3.75%. This sets a floor under overnight rates.
The standing repo facility. Eligible firms borrow cash from the Fed at 4.00% against Treasury and agency bonds. This caps overnight rates. The Fed set it up in July 2021.
Both rates sit at the edges of the Fed's target range, as we explain in How the Fed Sets Rates.
Reserves are the cash banks hold in their accounts at the Fed. Banks can lend them into the repo market when repo rates rise.
Source: FRED (WRESBAL, RRPONTSYD); YX Insights
The chart shows reserves and use of the reverse repo facility:
Reserves fell to $1.39 trillion on 18 September 2019, their lowest since March 2011. After the Fed's bond buying in 2020, they peaked at $4.28 trillion in December 2021. On 30 September 2026, they were $2.95 trillion.
Reverse repo use peaked at $2.55 trillion on 30 December 2022. By 2 October 2026, it had fallen to $1.5 billion.
The September 2019 repo spike
Source: FRED (SOFR, EFFR, DFEDTARL, DFEDTARU); YX Insights
A Fed staff study of the episode names two routine payments that landed on Monday 16 September 2019:
Corporate taxes. Quarterly tax payments drew about $120 billion out of bank and money market fund accounts over two business days.
Treasury settlement. $54 billion of new Treasury debt had to be paid for. Dealers financed much of it in the repo market.
These came when reserves were at their lowest since 2011 and Treasury debt outstanding was at a record. Cash to lend was scarce. Demand to borrow it was high.
On 17 September, SOFR hit 5.25%. The effective fed funds rate rose to 2.30%, above the top of the Fed's range. We cover that rate in What Is the Fed Funds Rate?
The New York Fed offered $75 billion of overnight repo loans that morning. Firms took $53 billion. SOFR fell back to 2.55% on 18 September. It was 1.95% on 19 September, after the Fed cut its range by 0.25 points.
Why the repo market matters
Dealers and funds use the repo market to finance their Treasury bonds. Its rate, SOFR, now prices trillions of dollars of loans and derivatives.
Repo rates also tend to rise at the end of each quarter. On 30 June 2026, SOFR was 3.68%, against 3.62% the day before. On 30 September 2026, it was 3.90%, against 3.87% the next day.
A repo is an overnight loan of cash backed by bonds. When cash in that market runs short, overnight rates can jump within hours. The Fed now keeps a facility at each edge of its range to limit that.
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