Rival SOFR conventions splinter loan market
Diverging approaches to calculating interest payments sow uncertainty and hedging concerns
Nature, as Aristotle observed, abhors a vacuum. So, it seems, do fixed income markets.
In the absence of an official forward-looking term version of SOFR, the secured overnight financing rate, various segments of the market have developed their own conventions for calculating interest payments based on US dollar Libor’s chosen successor.
“You can’t pin a multi-trillion dollar business on the hope that there will be a forward-looking term SOFR,” says Meredith Coffey, executive vice-president of
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