US Rates - Cash continues to roll in

Softening funding conditions and robust inflows into low-duration bond funds dominate the current fixed income landscape following the collapse of the U.S.-Iran ceasefire. The SOFR benchmark has declined 15 basis points to 3.53% since late June, driven by a surge of $80 billion into taxable money market funds. While a seasonal ramp-up of over $400 billion in net T-bill supply over the next seven weeks is expected to firm repo rates, continued cash accumulation may cap potential increases. Simultaneously, low-duration bond funds have reached $1 trillion in assets under management, fueled by a disinverted one-month/two-year curve and positive performance. Senior strategist P.J. Vohra notes that these dual inflows sustain strong front-end demand for treasuries and credit. However, upcoming bank earnings and potential accumulated other comprehensive income (AOCI) losses present looming headwinds for swap spreads and treasury demand.