The Federal Reserve Bank of New York ("NY Fed") plans to begin publishing three new reference rates based on overnight repurchase agreements backed by Treasuries ("Treasury repo rates") on April 3, 2018.
As previously covered, the following new Treasury repo rates will be published:
- Secured Overnight Financing Rate ("SOFR") will be the "broadest measure" of overnight Treasury financing transactions. The rate includes tri-party repo data from Bank of New York Mellon ("BNYM"), as well as cleared bilateral and General Collateral Financing ("GCF") repo data from the Depository Trust & Clearing Corporation ("DTCC"). This rate was chosen by the Alternative Reference Rates Committee to be used as the alternative to U.S.-dollar LIBOR.
- Tri-Party General Collateral Rate will be based only on tri-party repo data from BNYM.
- Broad General Collateral Rate will be based on tri-party repo data from BNYM, as well as cleared GCF repo data from DTCC.
In addition to the repo rates, the NY Fed plans to publish statistics on the distribution of volumes each day. The Treasury repo rates and accompanying statistics will be published daily at approximately 8:00 a.m., Eastern Time.
Commentary / Lary Stromfeld
This is an important first step in the development of a market for a new reference rate. If this new index is ultimately to replace LIBOR, a robust market must develop for adjustments to SOFR that reflect the tenors and credit spreads that are used in products that currently reference LIBOR. A critical question is whether that market will develop before LIBOR becomes unavailable or illiquid, or indeed at all. Market participants must begin to assess the exposure they will have at that time and whether their transactions, as well as their internal systems and policies, are prepared for the range of potential outcomes.
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