A measure of the cost of borrowing short-term funds backed by U.S. Treasuries spiked this week to its highest since 2019, a move some market participants attributed to dealers closing their balance sheets for the year, according to a report by Reuters. 

The report notes that The DTCC GCF Treasury Repo Index , which tracks the average daily interest rate paid for the most-traded General Collateral Finance (GFC) Repo contracts for U.S. Treasuries, jumped to 5.452% on Tuesday from 5.395% last week. That is the highest level since September 2019, when dwindling bank reserves sent the cost of overnight loans as high as 10%, forcing the Federal Reserve to intervene.

The spike resulted from dealers closing their books for the year, which meant borrowers had to pay more to fund their collateral, several market participants said to Reuters.

Cash flowing into the Fed's reverse repo (RRP) facility jumped to $793.9bn on Dec. 26 from $772.3bn as of the end of last week.

"It's year-end coming and bank balance sheets and window-dressing are preventing the money market funds from taking cash to banks," the report quoted Scott Skyrm, executive vice president of Curvature Securities. "If it wasn't year end ... a lot more of that RRP cash would be flowing into the repo market."