Secured Overnight Financing Rate (SOFR) is a more robust alternative benchmark to LIBOR
With the phasing out of the London interbank offered rate (LIBOR), a new benchmark, known as the secured overnight financing rate (SOFR) is a more robust alternative to LIBOR. Invesco Fixed Income Team expects SOFR is an improvement over LIBOR because it is based on interest rates charged in actual lending transactions. In contrast, LIBOR is based on submissions of interbank lending rates by major banks that don’t have to be tied to actual transactions, making it more susceptible to manipulation.
Going forward, we believe greater adoption of SOFR by a broad range of issuers as entities collect data points tracking its volatility and liquidity, determine its performance versus other indices and establish the internal systems and procedures necessary to issue and price securities to the SOFR benchmark.
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