Federal agencies, banks and investment firms are pushing Wall Street to install their preferred replacement for the London interbank offered rate, the interest-rate benchmark underpinning trillions of dollars in financial contracts. The Treasury Department on Wednesday said it was considering floating-rate notes linked to a new rate created by the Fed—known as the secured overnight financing rate, or SOFR. That came after a Federal Reserve Bank of New York working group in July endorsed using SOFR in adjustable-rate mortgages....
Ongoing comments from the US Treasury stating that it is considering issuing a SOFR-linked Treasury FRN are designed to push Wall Street to adopt SOFR as a LIBOR replacement, according to the Wall Street Journal. ARRC is trying to encourage SOFR to develop organically, but finding a substitute for the benchmark that works across products and accurately reflects the risks of short-term lending has proven challenging and companies have been slow to switch. ICE, which owns the rights to LIBOR and created the bank yield index, an alternative credit-sensitive benchmark designed to behave like LIBOR, inked the index to SOFR in July, while continuing to use bank debt yields. ARRC has expressed doubt that there will be enough trading activity to support the ICE rate and regulators have signalled concerns about SOFR alternatives and urged companies to find ways to use SOFR.