Markets are pricing a greater than 90% probability of a 25-basis-point Fed funds rate hike on Wednesday, which would mark the first increase since 2023. The move reflects persistent above-target inflation and a resilient labor market, with futures also pricing at least one additional hike before year-end. The two-hike path implies Fed funds could reach a new cycle high, pressuring short-end Treasuries and lifting SOFR materially.
For Armada's traditional repo desk, higher SOFR directly increases borrowing costs on floating-rate repo agreements and alters the attractiveness of term versus overnight structures. Counterparties including MMFs and hedge funds may reposition duration exposure, increasing collateral turnover. Legal counsel should confirm rate-reset language in existing MRA and GMRA agreements is current.