May 14, 2019 / 6:04 PM / 11 days ago

MONEY MARKETS-SOFR hits two-month low, fed funds rate unchanged

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NEW YORK, May 14 (Reuters) - A gauge on the borrowing costs of banks and Wall Street in the U.S. repurchase agreement market fell to a two-month low on Monday, while the interest on what banks charge to lend reserves overnight held steady, New York Federal Reserve data released on Tuesday showed.

Most money market rates have been declining after the Federal Reserve this month reduced the interest it pays banks on reserves they leave with the central bank in an effort to encourage more wholesale lending.

The Secured Overnight Finance Rate (SOFR) fell to 2.38% on Monday, which was the lowest level since March 11 and lower than 2.40% on Friday.

The average, or effective, federal funds rate was unchanged at 2.38% on Monday.

The fed funds rate’s premium on the Fed’s interest on excess reserves remained at 3 basis points.

In the futures market, fed funds contracts implied traders see nearly a 71% chance the Fed would lower interest rates by year-end, down slightly from 73% late on Monday, according to CME Group’s FedWatch program.

Worries about a trade war between China and the United States stoked expectations the Federal Reserve may ease monetary policy later this year to combat any slowdown from the additional tariffs the two countries have imposed on each other since Friday.

Reporting by Richard Leong Editing by Susan Thomas

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