Trading in forward contracts using the benchmark rate expected to replace Libor surged to a record this month. Interest-rate swaps are contracts that allow users to hedge or bet on the cost of future interest payments. The secured overnight financing rate, or SOFR, is now the leading alternative used by the contracts, as opposed to the discredited London interbank offered rate, known as Libor. SOFR was introduced by the Federal Reserve of New York in April 2018. ...
Volumes in SOFR-linked swaps reached $13.6bn in March, nearly twice January’s previous high, as investors hedged against anticipated quarter-end volatility. At the end of December, a jump in overnight Treasury repo rates pushed SOFR from 2.46% to 3.00% with the general collateral financing rate reaching 6% intraday. Thomas Pluta, global head of rate trading at JPMorgan said the increased use of SOFR derivatives is a positive indication that the market use of the RFR is continuing to evolve.