ARRC: No Guarantee on Forward-Looking SOFR Term Rate in 2021

The Alternative Reference Rates Committee today said it “will not be in a position” to recommend a forward-looking term rate using the Secured Overnight Financing Rate by mid-2021. The committee added that it “cannot guarantee” that it will be able to recommend an administrator that can produce a robust forward-looking SOFR term rate by the end of 2021, when certain U.S. dollar tenors of the London Interbank Offered Rate will cease to publish.

“While trading activity in SOFR derivatives is growing, at this time, the ARRC believes that it is not yet in a position to recommend a term rate with confidence based on the current level of liquidity in SOFR derivatives markets,” the committee said. SOFR is the ARRC’s recommended replacement for Libor. However, with Libor’s cessation date approaching soon and over $90 trillion in USD Libor exposures set to mature after Libor cessation, the ARRC “encourage[d]market participants to continue to transition from Libor using the tools available now,” including SOFR averages and index data that can be applied in advance or in arrears.

The ARRC said it will continue to review submissions in its RFP for an administrator to develop a forward-looking SOFR term rate contingent on liquidity and other conditions being met. The committee will also hold a series of workshops to help banks and borrowers understand how to use existing SOFR tools for business loans. Read more.