Welcome to Thoughts on the Market.
I am Vishy Tirupathur, Morgan Stanley's Chief Fixed Income Strategist.
And I'm Martin Tobias from the U.S. Interest Rate Strategy Team.
Yesterday, the U.S. stock market shot up quite dramatically after President Trump paused most status for 90 days.
But before that, there were some stresses in the funding markets.
So today, we will dig into what those stresses were, and what transpired, and what investors can expect going forward.
It's Thursday, April 10th, at 11.30 a.m. in New York.
President Trump's Liberation Day tariff announcements led to a steep sell-off in the global stock markets.
Martin, before we dig into that, can you give us some funding markets 101?
We hear a lot about terms like SOFR, effective Fed funds rate, the spread between the two.
What are these things, and why should we care about this?
For starters, SOFR is the Secured Overnight Financing Rate,
and the Effective Fed Funds Rate, EFR, are both at the heart of funding markets.
Let's start with what our listeners are most likely familiar with, the Effective Fed Funds Rate.
It's the main policy rate of the Federal Reserve.
It's calculated as a volume-weighted median of overnight unsecured loans in the Fed Funds Market.
But volume in the Fed Funds Market has only averaged $95 billion per day over the past year.
SOFR is the most important reference rate for market participants.
It's a broad measure of the cost to borrow cash overnight collateralized by Treasury securities.
It's calculated as a volume-weighted median that covers three segments of the Rebo Market.