What if reserve scarcity sends overnight SOFR spiking?
Reserves drop below LCLoR, SOFR spikes above IORB and the Fed is forced into standing-repo/SRF use; the read-through is wider credit and lower financials/equities until liquidity is added. The clean analogue is the Sep-2019 repo blowup (SOFR to ~10% intraday) that pushed the Fed into bill purchases. Trade the front-end repo dislocation, not the small equity beta; the Fed's reaction function here is mechanical and fast.
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The butterfly cascade
How this trigger trickles across markets, left → right — the root shock, its first‑order moves, then the ripple effects. Drag any node; tap a market for its real price history.
Resolution timeline — how this probability is moving
Our model's odds (electric blue) over time vs the market's (Polymarket, amber), from the past toward the 0–6 months horizon. Each dot is a real macro event that nudged the probability — green pushed it up, red pushed it down. Tap a dot for the source. Loading the probability audit trail…
What it would mean
If this plays out, it is a risk-off shock. Bank reserves fall below the comfort level and overnight rates spike, forcing the Fed into emergency standing-repo operations. The trigger decomposes into signed root‑shocks — Credit spreads ▲ · Financial conditions ▲ — which propagate through our causal graph to the markets below.