Signs of a tightening repo market emerge as investors flock to Fed interest rate futures

Investors are piling into futures linked to the Federal Reserve's benchmark overnight interest rate at a record pace amid tight risks in the market for late-quarter short-term funding. Data showed that the September contract for federal funds futures, which is used to bet on the direction of the Fed's benchmark overnight rate, had traded close to 500,000, surpassing the record for the first generic contract set on April 3, when Mr. Trump unleashed sweeping tariffs that roiled markets. Some market participants fear dwindling reserves could trigger a spike in funding pressures at the end of the month and quarter, when dealers cut back on repo operations and strengthen balance sheets to meet regulatory requirements, pushing up funding costs. The early US sell-off intensified again as traders expected the effective rate to rise to 4.10 per cent by the end of the month.