SBI does deals using SOFR as benchmark

State Bank of India (SBI) has executed two inter-bank short term money market deals with pricing linked to SOFR (Secured Overnight Financing Rate). SOFR is a replacement for USD LIBOR that may be phased out end-2021.

  • This follows the U.K.’s Financial Conduct Authority deciding not to compel banks on LIBOR calculation after December.
  • “The transaction shows SBI’s progress in aligning systems and processes to embrace alternate reference rates,” .

SOFR (Secured Overnight Financing Rate):

  • The secured overnight financing rate (SOFR) is a benchmark interest rate for dollar-denominated derivatives and loans that is replacing the London interbank offered rate (LIBOR).
  • Interest rate swaps on more than $80 trillion in notional debt switched to the SOFR in October 2020.
  • This transition is expected to increase long-term liquidity but also result in substantial short-term trading volatility in derivatives.

KEY TAKEAWAYS

  • The secured overnight financing rate (SOFR) is a benchmark interest rate for dollar-denominated derivatives and loans that is replacing the London interbank offered rate (LIBOR).
  • SOFR is based on transactions in the Treasury repurchase market and is seen as preferable to LIBOR since it is based on data from observable transactions rather than on estimated borrowing rates.
  • While SOFR is becoming the benchmark rate for dollar-denominated derivatives and loans, other countries have sought their own alternative rates, such as SONIA and EONIA.

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