Shedding light on the dynamics of the secured overnight financing rate (SOFR)

Shedding light on the dynamics of the secured overnight financing rate (SOFR)

Investigating the transition from the London interbank offered rate (LIBOR) to the secured overnight financing rate (SOFR) and considering the documented volatility of SOFR, this study examines the dynamic nature and potential drivers of the SOFR by analyzing both the SOFR–EFFR (effective Federal Fu...

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Veröffentlicht in:International review of finance 2024-09, Vol.24 (3), p.557-567
Hauptverfasser: David‐Pur, Lior, Galil, Koresh, Rosenboim, Mosi, Shapir, Offer Moshe
Format: Artikel
Sprache:eng
Schlagworte:
effective Federal Funds rate (EFFR)
interest on excess reserves (IOER)
London Interbank offered rate (LIBOR)
repurchase agreement (repo)
secured overnight financing rate (SOFR)
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container_end_page 567
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container_title International review of finance
container_volume 24
creator David‐Pur, Lior
Galil, Koresh
Rosenboim, Mosi
Shapir, Offer Moshe
description Investigating the transition from the London interbank offered rate (LIBOR) to the secured overnight financing rate (SOFR) and considering the documented volatility of SOFR, this study examines the dynamic nature and potential drivers of the SOFR by analyzing both the SOFR–EFFR (effective Federal Funds rate) and SOFR–IOER (interest on excess reserves) spreads. The results reveal noteworthy correlations between the SOFR and end‐of‐month anomalies and Federal Reserve market interventions in the repo market. These effects persist even after controlling for other variables, such as the amount of outstanding Treasury securities, Treasury General Account balance, and net repo transactions by primary dealers. Investors in SOFR‐linked instruments should be mindful of the possible impact of these factors.
doi_str_mv 10.1111/irfi.12439
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subjects effective Federal Funds rate (EFFR)
interest on excess reserves (IOER)
London Interbank offered rate (LIBOR)
repurchase agreement (repo)
secured overnight financing rate (SOFR)
title Shedding light on the dynamics of the secured overnight financing rate (SOFR)
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