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Unfortunately the replacement of SOFR is a collateralized rate where as LIBOR is non-collateralized. Adoption of SOFR has been slow because its not 1:1. Plus, L
by epa 5y ago
Unfortunately the replacement of SOFR is a collateralized rate where as LIBOR is non-collateralized. Adoption of SOFR has been slow because its not 1:1. Plus, LIBOR is not dead yet, still a lot of contracts that need to go through maturity before the rate truly dies.
Interesting history on LIBOR, was created related to an Iran loan in the 1960s. Doesnt seem that long ago but that is pushing 50 years now. Imagine apple told you that mouse will no longer be supported on OSX, please everyone switch to touch screen -- the adoption would be slow at best.
- gadders 5y agoThe other difference is that LIBOR is a forward-looking rate, whereas SOFR (unless you have Term SOFR) is a backward looking rate (i.e. that is for LIBOR you know at the start of the month what rate you will pay for the following month, whereas with SOFR you don't know the rate until the end of the interest period [or 5 days before in the case of lookback])
- JackFr 5y agoAnd the SOFR is only an overnight rate. There is no official Term SOFR. The CME has forward SOFR contracts for 1, 3, 6 and 12 months -- which are not really the same thing, but if you squint hard you can treat them kind of like forward looking term rates.