Bank of America Global Research discusses the USD funding outlook into year-end.
USD funding is likely to be biased slightly tighter into end '22. Pressure to come from gov't supply, bank capital constraints, and MMF reform risk. We discuss drivers across:," BofA notes.
Gov't paper: bill & FHLB supply will likely grow $120b / $125-150b.
Repo: UST GC repo rates should remain quite stable near ON RRP as repo cash still overwhelms collateral.
Bank funding: tighter conditions driven by: Fed QT, dealer market-making constraints, finalization of MMF reform.
Risks are to higher USD funding rates vs FF OIS. Dec FRA-OIS is already priced for more year-end widening vs usual," BofA adds.