In previous blogs, we reported the return of the month end SOFR volatility with regular increase of the spread above Fed Fund target. We have updated the graph and the data. As seen in Figure 1, the month-end volatility continues to be visible almost every month with a larger impact at the latest quarter end.
Figure 1: Spread over target rate for overnight benchmarks.
Over the reported period the average spreads of “normal” days are 7.08 bps. We report below the average spread above that average for “special” days:
| Day of the month | Spread (bps) |
|---|---|
| 1st | 4.20 |
| 2nd | 2.35 |
| 15th | 0.30 |
| Last | 3.15 |
Based on our blog and presentations, it is natural to ask if something similar exists in other currencies. We have run an analysis for EUR. There the results are somehow the opposite. The last days of the month usually see a lower rate. This is reported in Figure 2. The numbers reported are the difference between the last business day of the month rate and the average of the two adjacent rates (second last day of the month and first day of the next month). The average decrease of rate is 1.13 bps with all month but one lower.
Figure 2: ESTR decreased rate at month end.