Why the transition from LIBOR -> SOFR, rather than EFFR?
I wonder why the effective federal funds rate (EFFR) was not chosen to replace LIBOR starting 2021 as the benchmark interest rate? Points for EFFR: 1. Like EONIA and SONIA, it is the reference rate on overnight index swaps and represents an unsecured, fixed lending rate. 2. SOFR instead represents a secured rate, making it an awkward replacement for LIBOR (unsecured) 3. With the underlying repo mess compounded by regulation and bank balance sheet restrictions, SOFR is way more volatile, spiking seasonally (around year-end) and recently (2017-2019) during the Fed's BS normalization.
I get that SOFR is derived from a functionally much more liquid Treasury market, but surely with EFFR's stability, comparability and unsecured nature, it's the better alternative to replace LIBOR?
Any thoughts are appreciated!
Hi no arb baby please, check out these threads:
I hope those threads give you a bit more insight.
Culpa qui aliquam quam beatae et eos possimus. Quae earum dolor facere in. Quis laudantium molestiae unde voluptates tenetur fuga.
Magnam blanditiis et qui nesciunt. In fugit sunt est sed. Eius voluptatum pariatur minima labore doloremque ducimus ullam. Autem qui deserunt sunt et rerum.
Aperiam excepturi sit sunt ut neque repellat numquam omnis. Est ut iste velit est. Nemo nemo minus eius cupiditate. Consequatur expedita voluptas quod corrupti aperiam laborum.
Aut et velit id est consequatur nihil in. Pariatur sapiente beatae molestiae vel possimus eveniet. Iste laudantium eveniet possimus porro.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...