THE LIBOR TO SOFR TRANSITION
Stay Informed About the Secured Overnight Financing Rate (SOFR)
The London Interbank Offered Rate (LIBOR) transition to the Secured Overnight Financing Rate (SOFR) is the biggest transformation in financial services today, affecting some $200 trillion of U.S. Dollar transactions. LIBOR is slated for cessation at the end of 2021. Increasingly, financial regulators in the US and UK are speaking out about LIBOR reform, and their message is uniform – transition needs to begin today. This leaves FHLBNY members and their clients with a need to identify an alternate benchmark index for new floating-rate transactions and a strategy for managing legacy LIBOR transactions extending beyond 2021.
FHLBNY Articles, News, and SOFR-Linked Products
FHLBNY Related Credit Resources
LIBOR- SOFR Podcast Series: The Great Transition
Articles and News
Guidance From Our Regulators
Important LIBOR Transition Resources
ARRC Alternative Reference Rates Committee
Your first SOFR stop. Offers News, Presentations Consultations, Meeting Minutes since 2014 https://www.newyorkfed.org/arrc
Federal Reserve Bank of New York
Your source for daily SOFR, TGCR, BGCR rates and volumes, historical indicative data from 4/2/2018, proxy survey data from 1998
ISDA International Swap and Derivatives Association
Evolving derivatives fallbacks, supplements, consultations, protocols, market statistics https://www.isda.org
CME Group: SOFR futures and cleared SOFR swaps exchange
A SOFR page featuring trade data, news, and a running summary of SOFR issuance
ICE Intercontinental Exchange: LIBOR’s administrator
FASB Financial Accounting Standards Board
LIBOR and SOFR Hedge Accounting in Transition new
Frequently Asked Questions
The Federal Home Loan Bank of New York has compiled a list of FAQs and their answers below. If there is an area of interest that is not on the list, please feel free to contact a Relationship Manager at (212) 441-6700 or e-mail at [email protected].
What are the advantages of SOFR-indexed funding?
1. SOFR is a robust reference rate, developed by public and private market participants after more than two years of research and consultation, based on over $1 trillion of daily transactions, and operationally overseen by the New York Fed. SOFR is, by intent and construction, a reliable and representative indicator of market interest rates.
2. SOFR is a nearly risk-free rate, meaning it does not incorporate credit spreads which can increase funding costs in periods of crisis.
3. SOFR instruments set coupon payments based on an average of secured overnight rates, moderating daily rate volatility and the timing effects of individual fixing dates. The 3-month average of SOFR is less volatile than 3-month LIBOR.
4. Members have the opportunity to offer their clients SOFR-indexed floating-rate loans, funded by SOFR- indexed funding.
What are some considerations to keep in mind in connection with the transition to SOFR as a funding index?
1. The daily SOFR index will require a feed from a market data source. Historical SOFR is available from April 2018. To create a longer time series for analysis, indicative historical SOFR data is available from August 2014 and survey proxy data is available from February 1998, all from the New York Fed.
2. Operationally, SOFR instrument interest accrual is different than a LIBOR instrument, potentially requiring changes to systems and processes. Planning a SOFR pilot transaction is a good way to recognize, implement and test such changes. While SOFR conventions are evolving, the basic set of instrument parameters are mature, and, as a leading issuer, FHLB System conventions are well established.
3. SOFR markets are still developing, particularly in derivatives and long tenors. Fortunately, the SOFR cash FRN market is well-developed to 2-3 year tenors and FRNs of 5 years or longer are beginning to come to market. SOFR index projections may require new data sources of SOFR futures and SOFR swap market data and analytical system enhancements.
If you are a member and have any questions on the potential impact of COVID-19 to your institution, we are here to help. Please contact a Relationship Manager at (212) 441-6700
or a Member Services Representative at 1-800-546-5101, option 1.
Note: It is not the role of the FHLBNY to provide advice on which advances, if any, should be submitted for modification. Therefore, entire portfolios cannot be submitted for analysis, and each modification request must be identified individually by an advance number.
Disclaimer: Notwithstanding any language to the contrary, nothing contained in these disclosures is intended to constitute an offer, inducement, promise, or contract of any kind. Any product descriptions and pricing may be subject to change without notice.
The content provided in these disclosures is presented as a courtesy to be used only for informational purposes and is not represented to be error free. The FHLBNY makes no representations or warranties of any kind with respect to the content contained herein, such representations and warranties being expressly disclaimed. The FHLBNY is not a financial or investment advisor.
Moreover, the FHLBNY does not represent or warrant that the content of these disclosures is accurate, complete or current for any specific or particular purpose or application. It is not intended to provide nor should anyone consider that it provides legal, accounting, tax or other advice. Such advice should only be rendered in reference to the particular facts and circumstances appropriate to each situation. The FHLBNY encourages you to contact appropriate professional(s) and consultant(s) to assess your specific needs and circumstances and to render such advice accordingly. In addition, the FHLBNY is not endorsing or recommending the use of the means or methods contained in or through these disclosures for any special or particular purpose.
It is solely your responsibility to evaluate the risks or merits of any funding or investment strategy. In no event will FHLBNY or any of its officers, directors or employees be liable for any damages — whether direct, indirect, special, general, consequential, for alleged lost profits, or otherwise – that might result from any use of or reliance on these materials.