Traders Return to Fed Funds Wager That Surged During Repo Stress

Traders notched up record volumes in one narrow corner of the US interest-rate futures market this week, betting on a spread that reflects potential swings in overnight lending markets.

One side of the trade involves futures tied to the Secured Overnight Financing Rate — a benchmark rate based on the cost of borrowing against Treasury securities — while the other references the effective fed funds rate, the weighted average of overnight rates. The spread between the two can be traded in the derivatives market via one-month contracts.