The Floor Moved Up. There Is Nothing Underneath It.

The administered rate stepped 25bp higher on 17 Sep. The reverse repo buffer beneath it is $0.6bn.

The floor moved

The administered floor stepped up 25 basis points on 17 September. The interest on reserve balances rate went from 3.65% to 3.90% and has held there since.

Overnight money is trading just beneath it. SOFR printed 3.85% (as of 21 Sep), leaving the SOFR-IORB spread at -5 basis points. The effective federal funds rate is 3.88%.

A secured rate below the administered rate means cash is still abundant enough that the marginal lender accepts less than the Fed pays on reserves. That is what reserve slack looks like on the screen: no scramble, no premium for overnight money.

Nothing underneath it

What sits beneath the floor is the problem. Take-up at the Federal Reserve overnight reverse repo facility printed at $0.6bn (as of 21 Sep), down from $1.4bn on 14 Sep. A facility that once held more than two trillion dollars is empty.

The RRP was the shock absorber. While it carried a balance, Treasury issuance and balance-sheet runoff drained the facility first and bank reserves were left untouched. That sequencing is finished, and it has been finished for over a week.

Reserve balances stood at $3,013.8bn (as of 16 Sep), up $22.5bn from $2,991.3bn on 9 Sep. The cushion is still there. What is gone is the layer that used to protect it.

The Treasury rebuilt its cash into an empty facility

The Treasury General Account has rebuilt toward one trillion dollars. The cash balance printed at $985.9bn, against $822.2bn on 15 Sep — roughly $164bn in a week, absorbed into a facility that no longer holds anything.

The arithmetic offers no second option. With the RRP empty, a Treasury cash build is funded from bank reserves, or from money fund balances that would otherwise have been parked at the Fed. There is no longer a parking lot between the two.

This is not stress. It is the absence of the mechanism that used to delay stress. Reserves have not fallen yet. The question is what happens at the next quarter-end settlement, when the Treasury builds again and the RRP cannot absorb a dollar of it.

What changes the regime

The signal to watch is unchanged: the SOFR-IORB spread. A sustained positive print, SOFR above 3.90%, would say dealers and banks are bidding for cash to finance Treasury inventory. That is the shift from reserve abundance to reserve scarcity.

The second signal is new RRP usage. Take-up spiking back above $50bn would mean the system is parking cash again, which would relieve the drain on reserves.

Neither is happening. The long end is telling a different story than the plumbing. The 10-year is 4.96% at the 96th percentile of its range, the 30-year is 5.29%, and the 2s10s spread is 20bp. Front-end yields (2Y 4.76%, 3M 4.17%) are pricing policy, not funding. A 96th-percentile long bond alongside a 7th-percentile VIX at 14.87 is the divergence this column keeps returning to: the term structure is repricing while the funding markets stay quiet. Monday's piece (The Corridor Lost Its Floor. The Front End Did It.) mapped the front end of that repricing. This is the plumbing underneath it, and it has no buffer left.