New York Fed to Launch U.S. Libor Contender, Slow Adoption Seen - ABI

The New York Federal Reserve will launch a benchmark U.S. rate today to potentially replace Libor, and market participants hope it will prove more reliable after a long and complex switchover, Reuters reported. The New York Fed will begin publishing the Secured Overnight Financing Rate (SOFR), the first step in a multi-year plan to transition more derivatives away from the London interbank offered rate (LIBOR), which regulators say poses systemic risks if it ceases publication. Analysts have struggled to explain a recent jump in LIBOR, which has reached nine-year highs even as bank credit quality is seen as solid. Increased short-term Treasury issuance and declining demand for credit due to tax reforms are deemed the most likely factors. A decline in interbank lending has reduced the robustness of the rate, which is sometimes estimated rather than based on actual transactions. SOFR is based on the overnight Treasury repurchase agreement market, which trades around $800 billion in volume daily.

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