Term SOFR gets cautious blessing for derivatives

ARRC use cases for forward RFR could accelerate derivatives’ availability, though dealers must warehouse basis risk


A term version of the secured overnight financing rate, or SOFR, will be permitted for use in derivatives contracts according to best practices laid out by the group charged with weaning US markets off Libor, but its use will be limited to ‘one-and-done’ hedging of a narrow band of cash instruments – something market participants warn may not be enough to curb rising interest in alternative credit-sensitive benchmarks.

“The general theme in markets, particularly derivatives markets, where there

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