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Market Outlook

Funding Market Frenzy Looms if Supreme Court Strikes Tariffs

ADMIN || 9th January 2026

Any Supreme Court ruling against President Trump’s tariffs risks creating a far-reaching ripple effect that could hit funding markets.

If the Trump administration is required to refund tariffs it can potentially force increased bill issuance to ease the burden on the Treasury’s finances, pressuring funding spreads. Betting sites Polymarket and PredictIt show odds of a ruling against tariffs have increased in the past month.

From a trading-desk perspective, futures traders could be looking at any impact on the SOFR-fed funds basis. The SOFR-fed funds basis trade bets on future spread movements between the Secured Overnight Financing Rate, a benchmark rate based on the cost of borrowing against Treasury securities and those referencing the fed funds rate, the weighted average of overnight rates. The filter down effect on a ramp-up in T-bill issuance and how much if any is matched by up-sized reserve management purchases holds the key to reigniting trading around SOFR-fed funds spreads.

It’s showing minimal funding stress so far as overnight repo activity has been largely uneventful. Spreads are broadly trading off peak lows reached toward the end of last year, prior to the central bank’s policy announcement to begin buying $40 billion of Treasury bills per month.

However, the trade faces complications. Beyond either a full backing of the President’s IEEPA tariffs or a repeal, there are also “in-between” scenarios. There could be an outcome of limited/minimal refunds as more likely, resulting in limited economic impact & likely no change to bill issuance.

Beyond this, there is also a debate around when the size of the $40 billion purchases starts to drop off, pause or end. Meanwhile, any implications of potential supply shifts could also have an impact on the swap spreads market, which has also been relatively calm given the deluge of corporate bond issuance seen so far this week.

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