The Fed has introduced a more reliable benchmark to replace the scandalized Libor.
There’s a new benchmark in town ready to take down the tainted Libor. It’s called the Secured Overnight Financing Rate or SOFR. The Federal Reserve describes it as a “broad measure of the cost of borrowing cash overnight collateralized by Treasury securities” and is compiled using a volume-weighted median of transaction-level tri-party repo data from the Bank of New York Mellon, GCF Repo transaction data and bilateral Treasury repo transactions data from Fixed Income Clearing Corporation’s Delivery-versus-Payment service. That’s quite a mouthful. But to learn more about it and why corporations might face a challenge switching to SOFR, click here.
Also this week, we delve into what may happen to Europe’s low-volatility net asset value funds (LVNAV) if European regulators end up nixing so-called “reverse distribution mechanisms” (RDMs) in money market funds (MMFs). The issue is critical because RDMs allow euro-denominated MMFs to operate in a negative yield environment but maintain a stable NAV and pay dividends. To do this, the funds cancel some shares held by investors. Investors may hear something from European regulators in the next week, according to some sources. Read more here.
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