Strategists: The Federal Reserve will eventually inject additional liquidity ahead of its December meeting due to continued pressure.

The lack of direct response to recent market pressures has led to increased activity in SOFR futures-Federal Funds Rate basis trading, while other rates in the repo market remain high. Wall Street strategists warn that funding pressures will persist into November as reserves decline and more Treasury bill issuances inject collateral into the market. Mark Cabana, head of U.S. interest rate strategy at Bank of America, said that continued pressure will eventually force the Federal Reserve to inject additional liquidity before its December meeting. “The Fed’s decision to hold off on liquidity injections may be because it believes the current funding pressures are temporary,” Cabana wrote in a client report, “but we think that’s unlikely. As quantitative tightening continues, funding pressures are likely to persist and intensify.” (Jinshi)