Wells Fargo Securities Garret Sloan writes, "After taking a wild ride over the past few months, the SIFMA 7-day index appears to be finding an equilibrium level in the mid-50s. In December, the index remained relatively uncorrelated with the movement of the Fed funds rate, remaining pinned at 1 basis point for another three months before moving in response to tax-related outflows in March. Previous rate cycles have seen SIFMA move more quickly, though not in a 1-for-1 relationship. In 2004 the SIFMA index rose in relative lockstep with the Fed funds rate, though the magnitude of the increases did not follow the Fed funds market. At the beginning of the tightening cycle of 2004 the SIFMA 7-day rate and the Fed funds target rate were close to being equivalent, but by the peak of the tightening cycle in 2006, the SIFMA Index lagged the Fed funds rate by almost 200 basis points." RBC Capital Markets' Michael Cloherty adds, "SIFMA stopped falling after it reversed about 2/3 of the widening from early July to MMF reform (richer prices are causing the nontraditional buyers to exit). Another 2.5bp tightening in LIBOR/OIS would put the LIBOR improvement on the same footing as SIFMA, but we think year-end will cause the LIBOR tightening to pause. What makes us cautious about the front end is concern that year-end RP costs may rise as we see what happens on Nov 30th, making the carry on spread longs suffer."

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