Repo Rates Rise Even After Fed Tweak Meant to Dampen Volatility

Key rates tied to the US overnight funding market are rising, even after the Federal Reserve adjusted some of its tools in an effort to rein in volatility.

The Secured Overnight Financing Rate — an important one-day lending benchmark linked to activity in the repurchase agreement market — jumped to 4.40% as of Dec. 24 from 4.31%, according to New York Fed data released Thursday. That leaves it in line with the interest on reserve balances rate of 4.40%, an indication that bank year-end balance-sheet constraints are starting drive up the cost of overnight funding.

Other reference rates tied to ...