Open interest in one-month interest-rate futures tied to SOFR more than doubled between August and December, reaching about 375,000 contracts. Meanwhile, companies issuing new debt issued just $3.9 billion in SOFR-linked floating rate notes in December, less than one-tenth of similar issuance in August. The decline in SOFR-linked debt issuance has several causes, including recent interest rate cuts by the Fed, as well as the decision by Federal Home Loan Bank, a large issuer of SOFR-linked debt, to reduce SOFR sales. The recent volatility of the repo market also makes it difficult for some companies to gain comfort with SOFR, analysts said. Although proponents of SOFR adoption say it is less volatile than LIBOR when the rate is averaged over a three-month period, it has been prone to spikes at the ends of months and quarters.
Read more via the Wall Street Journal.