LIBOR Transition

Tradition SOFR Term Rates

Current overnight indices such as Fed Funds (EFFR) are widely considered to be less than ideal in two ways.  Firstly the rate is typically unsecured whereas most short-date funding is secured (e.g. repo).  Secondly the pool of available trades on which to base the level of a fixing is shallow compared to, for example, repo-based funding activity. 

As of April 2nd 2018 the Federal Reserve Bank of New York began publishing the Secured Overnight Financing Rate (SOFR) index and volumes. 

Term SOFR will likely be officially introduced in 2021 which is critical to LIBOR replacement as LIBOR will cease to be quoted by the end of 2021.  

Tradition has calculated implied 1-month, 3-month, 6-month and 1-year term SOFR rates. These rates are currently derived from multiple sources including our brokerage desks, CME SOFR futures SOFR/Fed Funds Basis, and overlaid with Tradition’s GC/GCF Repo data using a methodology similar to the one outlined by the Federal Reserve.

Tradition Daily SOFR Term Rates - Example

Tenor SOFR Term Rate (%)
1 Month0.021
3 Month0.0274
6 Month0.0344
1 Year0.0455

As of 2021-04-12 11:00 EST

SOFR Adoption

The adoption of SOFR by interest rate derivative market participants has seen substantial uptake over the past year and will continue to grow ahead of the likely USD LIBOR transition, which is anticipated to take place in early 2022. The following table illustrates the growth in SOFR volumes in tenors 2Y and under.

 

SOFR Chart Dec 2020

Quarterly volume % increase of SOFR trades in tenors under 2Y
pre and post LIBOR transition.
Source: Clarus Financial Technology

 

Tradition SOFR Sell Sheet

SOFR sell sheet thumbmail

TraditionDATA SOFR