Regional banks lead charge into term SOFR
Forward rate is favoured by smaller lenders and is increasingly used in caps and floors
When US regulators gave a forward-looking term version of the secured overnight financing rate (SOFR) a cautious go-ahead last July, it was on the proviso that its use in derivatives should be limited to end-user hedging of loans and cash instruments referencing the rate. That has not stopped term SOFR swaps becoming the hedging instrument of choice for some regional banks, while others in the market are also using the rate in more complex products, such as interest rate caps and floors.
Region
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