(Bloomberg) -- A key interest rate for the US financial system jumped sharply this week — exceeding the Federal Reserve’s target range — amid dwindling liquidity exacerbated by Treasury auction settlements and a quarterly corporate tax payment date.

The Secured Overnight Financing Rate — a one-day lending benchmark linked to activity in the market for repurchase agreements — rose to 4.51% as of Sept. 15 from 4.42% the prior session, according to the latest Federal Reserve Bank of New York data published Tuesday. That’s the biggest increase in the fixing since Dec. 31.

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The uptick pushed the spread between SOFR and the effective fed funds rate, which policymakers are expected to cut by a quarter point on Wednesday, to 18 basis points — the widest since Dec. 26. The fed funds rate is as of Sept. 12.

It’s 11 basis points above the rate the Fed pays on reserves parked at the central bank — currently 4.40%.

Rates on overnight financing used by banks and asset managers to borrow and lend to each other have been steadily rising as the Treasury is rebuilding its cash pile concurrently with the Federal Reserve reducing its balance sheet. Meanwhile, usage of one of the Fed’s overnight lending facilities — long considered a measure of excess liquidity in funding markets — has dropped to a four-year low.

Repo rates exceeded the Fed’s target range for overnight lending at the beginning of September and have remained elevated since then.

Even after the recent surge in benchmark rates, market participants are expecting a reprieve before volatility ramps up for quarter-end. That’s because two long-dated cash management bills are slated to mature, resulting in net supply paydowns of $50 billion, in addition to the monthly influx of cash from the government sponsored enterprises in the coming days.

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