With the end of year approaching and SOFR/IOR spreads widening, Darrell Duffie, renowned and prolific monetary scholar, joins Monetary Matters to share his views on why liquidity strains often appear at quarter- and year-end. Duffie explains his work on the September 2019 repo blowout and shares his findings that timing of bank payments is a better predictor of SOFR/IOR stress than the SOFR/IOR spread itself. Duffie also shares his views on debt-to-GDP levels, the theory that the Treasury has engaged in “stealth QE,” and the impact of SOFR transition on bank funding costs. Recorded on December 27, 2024.

Duffie Piece On Reserves Discussed For Most Of Interview (“Reserves Were Not So Ample After All”): [ Ссылка ]
Duffie Piece on SOFR vs. LIBOR impact on bank debt-overhang cost (discussed at end, “Bank Funding Risk, Reference Rates, and Credit Supply”): [ Ссылка ]
Darrell Duffie’s website [ Ссылка ]

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Timestamps
00:00 Intro
00:21 Apparent Funding Stress At End Of Year (December 27th/30th/31st 2024) In Interest Rate Spread of SOFR/IOR (Secured Overnight Financing Rate / Interest On Reserves)
18:58 "There Is Going To Be A Problem In 2025 With Ampleness of Reserves, Most Likely"
21:37 "The Ratchet Effect": How Banks Get "Addicted" To Reserves
23:46 "Lowest Comfortable Level of Reserves" (LCLoR)
32:06 Fed Likely To Stop Quantitative Tightening (QT) In 2025
35:45 Treasury Bill Issuance Impact On Reserves and SOFR Funding Capacity
45:25 Is T-Bill Issuance More Stimulative Than Issuing Treasury Bonds?
55:32 Debt Sustainability and Rising Debt-To-GDP Levels
1:05:35 Impact of SOFR transition on bank funding costs

#federalreserve #banks #treasurybills #treasurybonds #treasurymanagement #LIBOR #eurodollar

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