SOFR phase-in for cash products sparks ‘mismatch’ fears

Official proposal for one-year transition period could lead to basis risk, participants say

A plan to move existing US cash loans from Libor to a new risk-free rate over the course of one year could cause them to diverge from related derivatives products, market participants warn.

The Alternative Reference Rates Committee’s proposal to use a phase-in period for consumer products such as adjustable-rate mortgages and student loans is a departure from existing plans to shift swaps to a new rate immediately. The discrepancy could temporarily create basis risk between loans and their