Featured Product

    FED Report on Feasibility of Inferring Term Rates from SOFR Futures

    March 05, 2019

    FED published a staff working paper that examines the feasibility of using Secured Overnight Financing Rate (SOFR) futures prices to construct forward-looking term reference rates that are conceptually similar to the term London Inter-bank Offered Rate (LIBOR) rates commonly used in loan contracts. The Alternative Reference Rate Committee, which constitutes a group of private-sector market participants and is convened by FED, has recommended that markets transition to the use of SOFR in financial contracts that currently reference US dollar LIBOR.

    The paper describes the empirical approach used in the study and presents estimated term rates derived from closing prices on CME SOFR futures. The estimated term SOFR rates have closely tracked federal funds Overnight Index Swap (OIS) rates over the eight months since SOFR futures began trading. Finally, the paper summarizes the conclusions of the study and discusses potential extensions and improvements to the approach developed here. Appendix A to this paper presents technical details of the presented approach.

    To examine the performance of futures-implied term rates over a longer time horizon, the report presents estimates of term rates using federal funds futures from 2000 to the present. Consistent with prior research, it was found that futures-implied term rates are good predictors of realized compounded overnight rates during most periods; however, like other forward-looking term rates, including OIS and LIBOR, they were slow to adjust to rapidly falling overnight rates during the first months of the financial crisis. 

     

    Related Link: Working Paper (PDF)


    Keywords: Americas, US, Banking, Interest Rate Risk, Risk Free Rate, Interest Rate Benchmarks, LIBOR, SOFR, Research, Alternative Reference Rate Committee, FED

    Related Articles
    News

    SEC Finalizes Capital and Margin Requirements for Security-Based Swaps

    SEC adopted a package of rules and rule amendments to establish capital, margin, and segregation requirements for security-based swaps, under Title VII of the Dodd-Frank Act.

    August 22, 2019 WebPage Regulatory News
    News

    ECB Revises Prudential Provisioning Expectations for New NPEs

    ECB is revising its supervisory expectations for prudential provisioning of new non-performing exposures (NPEs) specified in the “Addendum to the ECB Guidance to banks on non-performing loans” (Addendum)

    August 22, 2019 WebPage Regulatory News
    News

    CFTC Proposes to Revise Information Collection on Margin Requirements

    CFTC is requesting comments on the burdens associated with certain aspects of the Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants (final rule).

    August 21, 2019 WebPage Regulatory News
    News

    FASB to Delay Effective Date for Insurance Contracts Standard

    FASB issued a proposed Accounting Standards Update that would grant all insurance companies that issue long-duration contracts, such as life insurance and annuities, additional time to apply the standard that addresses this area of financial reporting.

    August 21, 2019 WebPage Regulatory News
    News

    EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.9

    EBA published phase 2 of its technical package on the reporting framework 2.9, which includes validation rules, Data Point Model (DPM) data dictionary, and XBRL taxonomies.

    August 21, 2019 WebPage Regulatory News
    News

    FSB Publishes Responses to Its Consultation Related to SME Financing

    FSB published responses received to the consultation on a report on the evaluation of the effects of financial regulatory reforms on small and medium-sized enterprise (SME) financing.

    August 21, 2019 WebPage Regulatory News
    News

    APRA Revises Related Entities Standard for Banks

    APRA published a strengthened prudential standard APS 222 on associations with related entities, with the aim to mitigate contagion risk within banking groups.

    August 20, 2019 WebPage Regulatory News
    News

    EBA and ESMA Issue Joint Response to EC Letter on Crypto-Assets

    EBA and ESMA issued a joint response to the EC letter, from July 19, 2019, on crypto-assets.

    August 20, 2019 WebPage Regulatory News
    News

    FSB on Responses to Consultation on Wind-Down of Trading Portfolios

    FSB published responses received to the consultation on the solvent wind-down of the derivatives and trading book portfolio of a global systemically important bank (G-SIB).

    August 19, 2019 WebPage Regulatory News
    News

    FSB Publishes Responses to Consultation on Resolvability Disclosures

    FSB published responses received to the consultation on disclosures for resolution planning and resolvability of banks.

    August 19, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3681