S&P 500: Repo Usage, Leverage Pricing Signal Growing Market Headwinds

Published 03/10/2025, 05:25
Updated 03/10/2025, 08:12
  • Implied correlation and dispersion levels may soon revert to the mean, triggering a sharp downside in the S&P 500.
  • Watch Equity Financing futures contracts tied to SOFR and EFFR for signals on funding conditions, as recent declines suggest weakening support for equities.

There isn’t much to say at this point—it was a boring Thursday. No economic data was released, so rates essentially did nothing, and the stock market remained pinned at 6,720 all day, thanks to the 0DTE gang. Implied correlations were slightly higher, while dispersion was down slightly.

Ultimately, these measures will need to revert to the mean because both are at extremes, with high dispersion and low correlations, which means the S&P 500. is due to drop sharply.1-Month Implied Correlation Index Chart

More interesting is that equity financing costs, which briefly rose in September, are now starting to pull back again. It has been some time since we last discussed these futures contracts, as they have been fairly inactive. They perked up in early September, but are once again starting to decline in value, as noted by the BTIC-adjusted December 2025 EFFR contracts.Adjusted Interest Rate on SPXTR

We have also seen these BTIC S&P 500 Total Return Futures for December 2026 vs. SOFR begin to decline sharply, too.Adjusted Interest Rate on SPXTR-Daily Chart

Finally, equity repo usage declined through September 24, and since financing costs and repo usage have tended to move in tandem over time, a further decline in financing costs will likely result in a corresponding drop in repo usage as well.Equity Repo Usage Collateral

Add these to the growing list of reasons stocks shouldn’t be rising, along with private equity firm Apollo Global Management (NYSE:APO)—whose stock is also in decline—along with several others.Apollo Global Management-Daily Chart

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