The author is a professor at Unist and the head of the Global Industry-University Cooperation Center.
A series of abrupt rate spikes in the U.S. short-term Treasury market has raised concerns about the stability of dollar funding. The volatility began after the U.S. Treasury Department shifted its issuance mix from roughly 20 percent short-term and 80 percent long-term securities to a heavier tilt toward short maturities at 55 percent. The surge in bill supply tightened conditions across the short-term funding system, pushing the Secured Overnight Financing Rate (SOFR) sharply higher.

SOFR is the benchmark cost of overnight secured borrowing in U.S. markets. Stress in this rate often signals broader pressure in dollar liquidity. As demand for short-dated Treasurys intensified, the move quickly fed into SOFR, prompting traders and policymakers to watch the market more closely.
The volatility also tested the reverse repo facility, a tool the U.S. Federal Reserve uses to absorb excess liquidity by selling Treasurys to money market funds and other institutions. Under normal conditions, money market fund cash flows into the facility, keeping short-term rates stable. This time, those funds dried up, weakening the mechanism. As liquidity tightened, investors pulled capital from risk assets. After gold and Bitcoin moved lower, U.S. equities followed with a noticeable correction last week.
In response, the Fed activated the Standing Repo Facility, allowing financial institutions to borrow cash against high-quality collateral. The facility serves as an emergency pressure valve when short-term markets seize up. This was the first significant deployment since the program was introduced in 2021, underscoring the seriousness of the disruption. The Fed, rather than the Treasury, ultimately acted as the backstop to contain the fallout from the heavy issuance of short-term debt.
The shock reached Korean markets as well. Foreign investors have long treated Korea as a convenient source of liquidity during periods of global stress. As U.S. funding rates jumped and money flows reversed, Korean stocks saw rapid selling last week and the won weakened sharply. Equity markets have since stabilized, supported in part by expectations of a structural upturn in the semiconductor cycle, but currency volatility remains elevated.
Financial markets react quickly to shifts in liquidity. Periods of calm can give way to turbulence when the direction of money changes. The question now is whether economies and investors are prepared to withstand further stress until the yield curve settles.
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.

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