The observation period begins and ends 5 PDF Overnight Risk-Free Rates - FSB Although the $211B, According to the LSTAs Ted Basta, 1Q23 LSTA secondary loan trading volume increased 13% to $211B, as March activity surged to a 10-month high of, Daily Compounded SOFR Concept Document Advances, LSTA/Refinitiv Mark-to-Market Pricing Data, Morningstar LSTA Leveraged Loan Index Analysis, ARRCs Recommended Conventions for Syndicated Loans, ARRC Recommended Conventions for Syndicated Business Loans, Model Credit Agreement Provisions (MCAPs), Loan Mutual Fund Liquidity: LSTA Comments, Congress Echoes, Secondary Trading Monthly: 1Q23 Executive Summary, Term SOFR Uses: Good News for Hedges, Some Risk for TLBs. USD Libor futures) were still 3-times more liquid in terms of volume than the SOFR equivalent. volume. Asking for help, clarification, or responding to other answers. Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. AcrosstheCurve Credit Spread Indices - Berndt - Financial Markets The LSTA presents the results of the first quarter Secondary Trading & Settlement Study. 4 0 obj There are four different types of SOFR that may be used in loan agreements: (i) daily simple SOFR in arrears, (ii) SOFR compounded in arrears, (iii) SOFR compounded in advance, and. If the notional is constant, the total interest accrued would be the same as applying the simple average of the SOFR resets at the end of the period. For that reason, its often referred to as overnight SOFR. These versions of SOFR can diverge. Similarly I assume you can use a 1-year tenor SOFR swap issued 6 month ago with 6 months left to maturity as your current 6 month SOFR swap rate? For new financings involving a swap, or conversions of legacy swapped LIBOR floaters to SOFR, it will typically be economically advantageous to use daily SOFR (rather than Term SOFR) as the loan index. These compounded RFRs are each generally referred to as the "Adjusted Reference Rate"; Parabolic, suborbital and ballistic trajectories all follow elliptic paths. As outlined above, ISDA SOFR is set in arrears where LIBOR was set in advance. Forward-looking RFR Term Rates in a post-LIBOR landscape LSTA offers sample credit agreement to aid SOFR transition This overview provides a summary of the common permutations of these rates and borrower considerations for each. ]X">g!9w=e> 4,cy:wN Rmi;h3_e$#_*D`A~DQv)v6vn(j;.+Sj?4dW .7H *;V}alYA4RWE(s _x7E!b h@@a1*(\ }J_hYT4/?]w Attached is the April 2023 LSTA/Refinitiv Mark-to-Market Pricing File. One of these changes is to include Term SOFR flip forward language which would hardwire a future transition to Term SOFR if one were to be available and recommended by the ARRC. Said another way, if the LIBOR rate for the August period was based on the 7/28/2022 LIBOR reset, then under ISDA SOFR the rate would not be available until 8/28/2022. SOFR Rates For Dummies - A Helpful Overview in Layman's Terms, https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/users-guide-to-sofr2021-update.pdf, https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_SOFR_Synd_Loan_Conventions.pdf, https://www.newyorkfed.org/arrc/sofr-transition, https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/USD-LIBOR-transition-progress-report-mar-21.pdf. SOFR Average can also be used in arrears. Home / News & Resources / News / Daily Compounded SOFR Concept Document Advances. The final concept document will be published in 1Q21. There is a much more robust market supporting the calculation of SOFR. Premiums on new caps indexed to Term SOFR or costs associated with converting legacy LIBOR caps to Term SOFR will include a component attributable to this basis risk. Regulatory reporting of SEF trades requires OTC OIS swaps be reported but timings are not entirely robust and much more difficult to coordinate across all register SEF entities. The calculation is based on the full notional amount of the loan with a risk-free rate (SOFR, SONIA, etc.) Overnight vs. To make it simple, you could just assume that $s_{(12m,15m)}=s_{(15m,18m)}=s_{(18m,21m)}=s_{(21m,24m)}$ and solve: $$DF_{(t_0,15m)}\lambda s_{(12m,15m)}+DF_{(t_0,18m)}\lambda s_{(15m,18m)}+DF_{(t_0,21m)}\lambda s_{(18m,21m)}+DF_{(t_0,24m)}\lambda s_{(21m,24m)}+DF_{(t_0,12m)}r_{(t_0,12m)}=DF_{(t_0,12m)}r_{(t_0,24m)}+DF_{(t_0,24m)}r_{(t_0,24m)}$$. MathJax reference. and corresponding year count. The London Interbank Offered Rate (LIBOR) is averaged from reports by a panel of banks seeking unsecured USD-denominated loans in the short-term money market. 1 above) are already liquid and trade heavily: after all, London Clearing House switched to SOFR discounting from Fed-Funds discounting last year: these "standard" SOFR swaps work just the same way as the "old" Fed-Funds OIS swaps: the floating leg is compounded based on the daily published spot SOFR (compounded in arrears). Dealers must reserve against this risk by charging CRE borrowers more for their hedges. Here are blacklines against theFebruary draft, against theDaily Simple SOFR Concept Documentand against theLSTAs IG Term Loan Form. With talk of various credit-sensitive alternatives to USD LIBOR still common, weve prepared an overview of some of the leading credit-sensitive alternative benchmarks (e.g., BSBY, AMERIBOR, et al.). Demystifying the LSTA's SOFR Concept Credit Agreement For more information on the NCCR method generally, please refer to theARRC Recommended Conventions for Syndicated Business Loansand the accompanyingTechnical Appendices.The concept document also includes, for illustrative purposes only, the calculation formula for compounding using the cumulative compounded rate (CCR) method. one, three or six months). Heres an example comparing SOFR Index and SOFR Average: [(1.04136820% / 1.04085026%) 1] * (360/30) = 0.59713% which matches the 4/1/2020 30D SOFR Average print. PDF Alternative Reference Rates Committee Appendix to SOFR Floating Rate The FOMC has updated this "Fed Dot Plot" quarterly since January 2012. I think it is because there isnt much liquidity in SOFR ois swaps with very short maturities like 1m, 3m etc. One feature of the Self-Compounding FROs is that the . The sample language providing for the flip forward has been included in brackets and highlighted in blue (as it is in the Daily Simple SOFR concept document). I just wanted to highlight that the granularity is the only "problem" to solve here Would it be sensible to approximate the 90 days Compounded SOFR Forward curve + fix spread, by using this daily compounded OIS SOFR swap curve, adding the fixed spread implied by the 90 days fixed spread adjustment, and also allowing some credit risk allowance between a daily vs 3-month swap, and lastly converting the annual payment stream based in the OIS swap curve to a quarterly annual quote? Since SOFR Average is compounded based on the preceding SOFR prints for the respective term, its often referred to as compounded SOFR set in advance and is the index currently being used on Agency financings. 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