By Tyler Durden
This morning at 8am, the New York Fed, in cooperation with the Treasury Department’s Office of Financial Research, launched a much-anticipated, if largely worthless (for now) benchmark interest rate to replace Libor, together with two other reference rates, which traders and market participants hope will prove more reliable than the infamously rigged and manipulated index after a long and complex switchover.
The so-called Secured Overnight Financing Rate (SOFR), was set at 1.80 percent, roughly 17bp below the GC repo rate and 12bp above the fed effective.
Here is the full breakdown of today’s rates:
Secured Overnight Financing Rate (SOFR) set at 1.80%
Broad General Collateral Rate (BGCR) set at 1.77%
Tri-party General Collateral Rate (TGCR) set at 1.77%
SOFR – which unlike Libor is secured – is based on the overnight Treasury repurchase agreement market, which trades around $800 billion in volume daily. As Reuters notes, publishing the rate is the first step in a multi-year plan to transition more derivatives away from the London interbank offered rate (Libor), which regulators say poses systemic risks if it ceases publication; ironically it also poses systemic risks if it keeps rising as it references a total of $300 trillion in financial (swaps, futs and derivatives) and non-financial …read more