Spotlight on SOFR

The US has chosen the secured overnight financing rate (SOFR) as its Libor replacement. SOFR swaps could get a boost when clearing houses start using the new rate in discounting, but there are some caveats. For other products, the US is drawing up Libor fallbacks, creating potential clashes. Risk convened a panel to discuss the outlook for SOFR’s development

SOFR trendline

SOFR was selected by a group of industry participants in June 2017 to be the preferred replacement for US dollar Libor as the benchmark for roughly $200 trillion of interest rate products.

The decision to make the switch away from Libor – an integral part of the financial system for decades – was made following revelations that the benchmark had been manipulated during the financial crisis – suspicions that were first reported by Risk in January 2008.

Following this, the Financial Stability

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