N.Y. Fed Chief: Don’t Wait for Term SOFR to Begin Rate Transition

Market participants should not wait for term versions of the Secured Overnight Financing Rate to begin adopting it in contracts, Federal Reserve Bank of New York President John Williams said at an event today. SOFR is the Alternative Reference Rates Committee’s preferred alternative to the London Interbank Offered Rate, which will not be supported past 2021.

“SOFR is sometimes criticized for the lack of a term rate, but my message is don’t wait for a term rate to get your house in order,” said Williams. “Don’t use that as an excuse to halt the vital work of understanding where your exposure to Libor lies and how to prepare your business.”

Amid last week’s repo market turmoil, SOFR on Tuesday spiked 300 basis points to 5.25% before returning to previous levels. The ARRC amended its SOFR FAQ document on Thursday to point out that despite the day-to-day volatility, a three-month average of SOFR remained less volatile than Libor. Williams added that the New York Fed is preparing average SOFR rates and a SOFR index, “with the goal of publishing them daily by the middle of next year.”