SOFR, the Federal Reserve’s proposed replacement for LIBOR, climbed to a record 5.25% last week. While it dropped back to a more predictable 1.86% by the end of week, the spike highlighted concern already voiced by some experts about the upcoming switch from LIBOR to SOFR in the U.S. Kristi Leo, President of the Structured Finance Association, said investors are exhibiting a “modest” level of concern, and are “still evaluating” the benchmark. Still, participants in the working group of banks, investors and regulators brought together by the Fed to manage the LIBOR transition argued that, when used in transactions, SOFR is generally averaged out over 90 days, mitigating any temporary rises and falls. In fact, even including last week’s spike, SOFR rose only 2 basis points, compared with LIBOR’s 4 basis points increase over the same period.
Read more via the Wall Street Journal.