Fed funds swaptions offer SOFR alternative

Ben St. Clair
04 Mar 2020

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A handful of US dollar swaptions referencing the federal funds rate have traded in recent weeks, as investors look to move away from derivatives with Libor as the underlying rate.

The official alternative to US dollar Libor is the secured overnight financing rate, or SOFR, but liquidity in swaptions linked to SOFR is limited. Market participants say compounded fed funds offers similar rate exposure and allows users to test systems with a familiar overnight rate.

“I’m not sure how long this

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