A year ago, the worry was the opposite.
US funding markets were stressed, short-term rates were spiking, and the Fed was forced to end its balance sheet runoff. Now there's so much cash sloshing around that overnight lending rates have fallen below the Fed's policy floor.
And Wall Street says that's not going away.
Some $120 billion poured into US money market funds in May alone.
That money has pushed rates in the repo market, where banks borrow cash overnight against Treasury collateral, below the bottom of the Fed's target range.
The Secured Overnight Financing Rate (SOFR), the main benchmark, is just above 3.50% after averaging around 3.65% in April. Some trades have even printed as low as 3.40%.
Even the effective federal funds rate, the Fed's own benchmark that rarely moves between meetings, has dropped twice in the past month.
Every morning, Market Briefs breaks down the plumbing moves Wall Street actually watches - in five minutes, with a free investing masterclass when you sign up.
Strategists at Barclays, RBC, and Bank of America are pointing at structural changes, not seasonal noise.
In April, regulators relaxed the Enhanced Supplementary Leverage Ratio, a crisis-era rule that capped how much cash and Treasuries the biggest banks could hold on their books. RBC's Blake Gwinn called the tweak a "loosening of the handcuffs."
The result: the eight biggest US banks added $1.3 trillion in total assets in Q1. About $300 billion of that went into reverse repo positions, with roughly $400 billion into securities holdings.
Wells Fargo also had its asset cap lifted in June 2025, and it's now one of the biggest providers of overnight repo financing.
The Fed has been buying Treasury bills as part of its reserve management.
It's already slowed those purchases from $40 billion to $25 billion, and then to $10 billion a month. If conditions stay this loose, the next move could be a pause, and TD Securities said that's already on the table.
For investors, softer overnight rates can leak into broader market conditions. Cheaper funding gives dealers more room to hold Treasuries, which can support bond prices.
The next test will be how repo rates behave around quarter-end in June, when banks typically pull back on balance sheet use.
If rates stay this soft through that period, the cash glut is structural, not seasonal.
If you want clean reads on what's actually moving short-term rates, join Market Briefs - delivered every morning, plus you get a 45-minute investing course thrown in.
