The Secured Overnight Financing Rate (SOFR) less interest on reserve balances (IORB) prints at or below +10 basis points (bp) on December 31, 2026 — above the 0bp of today, but at least 12bp tighter than the +22bp of December 31, 2025. The mechanism is a Federal Reserve balance sheet that is growing again and a Standing Repo Facility whose minimum bid rate sits exactly 10bp above IORB.

SOFR fixed at 3.65% on August 28, 2026 against IORB at 3.65% — a spread of 0bp (Federal Reserve Bank of New York reference rates; FRED series IORB, September 1, 2026). Across 165 sessions in 2026 it has not once closed above +10bp. What follows shows why the December 2025 episode was a level shift that has already reversed, and names four signals that would prove the call wrong.

Key Levels:

• Instrument: SOFR–IORB spread — 0bp on August 28, 2026 (SOFR 3.65%, IORB 3.65%; NY Fed reference rates and FRED)
• Base case target: at or below +10bp on December 31, 2026 — versus +22bp a year earlier
• Benign case: 0bp to +3bp — the range covering all seven 2026 month-end fixes
• Stress case: above +15bp — requires reserve demand to outrun bill purchases
• Structural ceiling: +10bp — the Standing Repo Facility (SRF) minimum bid rate of 3.75% versus IORB at 3.65% (FOMC implementation note, July 29, 2026)
• Invalidation level: a September 30, 2026 fix more than +8bp over IORB, or SRF take-up above $10bn

Methodology: two series, differenced daily, and one trap

Every spread figure is computed by differencing two daily series: SOFR, published by the New York Fed and mirrored in FRED, and IORB, administered by the Board of Governors. The window runs from July 29, 2021 — the first IORB observation — to August 28, 2026, the most recent SOFR fix at the time of writing, giving 1,269 paired sessions. Standing Repo Facility take-up is the sum of accepted amounts across all repo operations on a date, from the New York Fed’s operation results, retrievable back to June 2025. Two caveats. No claim here reaches earlier than July 2021. And one data error is worth naming: requesting SOFR and IORB together from FRED’s chart endpoint returns two files split by frequency, and the daily file pairs SOFR with the effective federal funds rate, not IORB.

The data says the 2025 episode has already closed

The SOFR–IORB spread measures how far secured overnight funding trades from the rate the Federal Reserve pays banks to leave cash on deposit. When reserves are plentiful, banks arbitrage the two and the spread sits near zero or below; when reserves get scarce, dealers bid up repo to fund inventory and it widens. Between October and December 2025 it widened badly: the spread reached +32bp on October 31, 2025 and closed the year at +22bp, the widest year-end fix in the IORB series. That was the reserve-scarcity episode, and it is over. Across the 165 sessions of 2026 through August 28, the spread has averaged −1.4bp, with a maximum of +10bp set on January 2 and only one other session at +8bp or wider. All seven month-end fixes of 2026 landed between −2bp and +3bp.

Year-end fix	SOFR	IORB	SOFR–IORB
December 31, 2021	0.05%	0.15%	−10bp
December 30, 2022	4.30%	4.40%	−10bp
December 29, 2023	5.38%	5.40%	−2bp
December 31, 2024	4.49%	4.40%	+9bp
December 31, 2025	3.87%	3.65%	+22bp

Sources: NY Fed SOFR reference rates; FRED series IORB. Collected September 1, 2026. Window: December 2021 to December 2025.

The Standing Repo Facility tells the same story.

Turn date	SOFR–IORB	SRF take-up accepted
September 30, 2025	+9bp	$6.00bn
October 31, 2025	+32bp	$50.35bn
December 31, 2025	+22bp	$74.60bn
March 31, 2026	+3bp	$1mn
June 30, 2026	+3bp	$0
July 31, 2026	+1bp	$0

Sources: NY Fed repo operation results (accepted amounts summed per date); FRED series IORB. Collected September 1, 2026.

The August 31, 2026 turn drew $2mn. Since July 1 the facility has taken $475mn in all, largest day $102mn.

“Before concluding, let me also emphasize that in our ample-reserves regime, standing repo operations are a critical tool that helps provide a ceiling on money market rates.”

— Philip N. Jefferson, Vice Chair, Board of Governors of the Federal Reserve System (speech, January 16, 2026)

The mechanism: the ceiling is 10bp, and it is now a real one

The +10bp target is not a round number chosen for tidiness. The Federal Open Market Committee (FOMC) sets the SRF minimum bid rate at 3.75% and IORB at 3.65%, so any counterparty with facility access holds a standing bid at exactly IORB plus 10bp against Treasury or agency collateral. A fix above that level means dealers are paying through a facility they could have used — friction, not a funding price. On December 31, 2025 that is what happened: SOFR fixed 12bp through the SRF rate even as $74.6bn was drawn. Since then the FOMC has removed the aggregate limit on standing repo operations, and Vice Chair Jefferson has said he is “pleased to see increased usage” when it becomes economically sensible.

The supply side has changed more. Quantitative tightening is over: the October 29, 2025 FOMC statement said the Committee “decided to conclude the reduction of its aggregate securities holdings on December 1” (Federal Reserve, October 29, 2025). The live directive is the opposite of runoff: the July 29, 2026 implementation note orders the Desk to “Increase the System Open Market Account holdings of securities through purchases of Treasury bills” to maintain ample reserves. Total assets have grown from a trough of $6.536trn on December 3, 2025 to $6.731trn on August 26, 2026, up $195bn (FRED series WALCL). The 2025 turn priced a shrinking reserve pool. That premise is gone.

Being a spread between two administered-rate-anchored series, the call is indifferent to the policy path: a cut moves IORB, the SRF rate and SOFR together, as a hike does in reverse. That is why it can be stated with more confidence than the directional views this desk has published, such as the US 2-year yield call to 3.75% or the UK 10-year gilt call into the October Budget. The steelman against it: reserve demand is not observable in advance, and non-reserve liabilities swing hard in late December.

What the model misses

Three limits. First, the spread can spike away from a quarter-end: February 17, 2026 drew $30.5bn of SRF, the largest day of 2026, and January 2 drew $22.8bn. Neither appears in the month-end series.

Second, the $195bn of balance-sheet growth is net. Reserves are one liability among several, and the Treasury General Account can absorb much of a bill-purchase programme without adding a dollar to reserve balances. Asset growth is necessary here, not sufficient.

Third, the analogue set is thin. IORB dates only to July 2021, giving five year-end observations: four between −10bp and +9bp, one at +22bp. A base rate built on five points is weak, and the outlier is the most recent.

“The tools identified in today’s User’s Guide would unlock substantial room to further reduce the balance sheet, which I would like to see.”

— Stephen I. Miran, Governor, Board of Governors of the Federal Reserve System (speech, March 26, 2026)

What would invalidate this call

The base case breaks if ANY ONE of these four signals fires:

• The September 30, 2026 fix prints more than +8bp over IORB. The cheap early test, four months before the call resolves. Every 2026 month-end fixed between −2bp and +3bp; a Q3 turn at +8bp or wider means the level shift is back.
• SRF take-up on September 30, 2026 exceeds $10bn. The last four turns drew $50.35bn, $74.6bn, $1mn and zero. Above $10bn puts the facility back in the regime that produced +22bp.
• The FOMC reverses the reinvestment directive on October 27–28 or December 8–9. A return to capped runoff restores the mechanism that drove the 2025 episode. Governor Miran has argued for $1trn to $2trn of further reduction.
• Total Federal Reserve assets fall below $6.60trn on the weekly H.4.1. That retraces two-thirds of the growth since the December 3, 2025 trough, signalling bill purchases no longer keep pace.

What to watch next

The September 30 fix, published October 1, is the highest-information observation before year-end. Watch the 99th percentile of the SOFR distribution alongside the median, since the tail widens first: on August 28, 2026 it printed 3.73%, still 2bp inside the SRF rate. The FOMC meets September 15–16, October 27–28 and December 8–9; the weekly H.4.1 carries the balance-sheet path; the New York Fed publishes repo results daily. Our OAT–Bund spread call uses the same ceiling structure, and the USD/JPY capped-level call is its foreign-exchange analogue.

FAQ

Why is this call wider than today’s spread but tighter than last year’s?

Both framings are true and both matter. The spread is 0bp now, so +10bp sits above spot; some year-end widening is normal and the call allows for it. But December 31, 2025 fixed at +22bp, so against the year-ago analogue this is a fade of at least 12bp. Read only the first and it looks like a bet on funding stress. It is the opposite.

Does a Federal Reserve rate cut in December break the call?

No. Both legs are anchored to administered rates. If the FOMC cuts on December 8–9, IORB falls, the SRF minimum bid rate falls with it, and SOFR follows the collateral market down. The spread is largely unaffected. The same holds for a hike or a hold — which is what makes a spread call more robust than a level call.

Is reserve scarcity still the right frame for 2026?

No, and this call is built against that error. The FOMC concluded balance-sheet runoff on December 1, 2025, and the current directive instructs the Desk to buy Treasury bills to maintain ample reserves. Total assets are up $195bn from their December 3, 2025 trough. Reading 2026 as a continuation of 2025 inverts the policy stance.

What is the fastest way to check whether the call is working?

Two numbers on October 1, 2026. The New York Fed publishes the September 30 SOFR fix that morning; subtract IORB, unchanged at 3.65% unless the FOMC moves on September 16. Then check that day’s repo operation results. A fix inside +8bp with take-up under $10bn keeps the call alive; either threshold breached kills it.

This article is informational analysis only and is not financial, investment, or trading advice. Foreign-exchange, commodity, and equity markets are highly volatile and can lose substantial value rapidly. Leveraged products carry total-loss risk and may exceed the initial margin posted. Past performance and historical correlations do not guarantee future results. Do your own research and consult a regulated financial adviser before making any investment decision.