Unsecured Scarcity EFFR - IORB

Think of it this way

If secured and unsecured borrowing both become more expensive at the same time, what is missing is money. If only the secured kind does, what is missing is the collateral. They are two different problems, and they are fixed in different ways.

What is Unsecured Scarcity EFFR - IORB?

It is the difference between the rate at which banks lend reserves to each other without collateral and what the Fed pays them to keep those reserves idle.

How to read Unsecured Scarcity EFFR - IORB

Normally slightly negative or close to zero. When it turns positive in a sustained way, it indicates that some banks are willing to pay a premium for reserves. Lag: none; a rate is priced in on the same day.

What Unsecured Scarcity EFFR - IORB means for the market

It complements the SOFR spread. The repo market (SOFR) is secured; the federal funds market (EFFR) is not. When both come under strain at the same time, reserve scarcity is widespread. When only SOFR is strained, it is usually a collateral problem, not a cash problem.

Where the money flows

The same signal, but in lending between banks, the kind with no collateral. Example: if a bank has to pay more than what the Fed pays it on its reserves, it cannot find anyone to lend to it. Read together, the two spreads tell you what is scarce: if both become more expensive, money is short; if only the one backed by bonds does, what is short is bonds.

What to watch in Unsecured Scarcity EFFR - IORB

It is read by comparing it with the other spread, never on its own. This one hardly ever moves —it has exceeded +5 basis points on only 1% of days since 2018 and has never gone above +20— so when it does rise, it is serious. The rule for telling what is failing: if both rise, the system is short of money; if only the secured one rises, what is scarce is bonds, not cash.

Measures scarcity in interbank lending, the kind with no bonds involved. It is read together with the other one.