Maris Research

Treasury Issuance Could Aid Adoption of SOFR Benchmark

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It has been almost a decade since the revelation that certain banks were manipulating the London interbank offered rate (Libor), a key benchmark for corporate borrowing worldwide. Since then, regulators globally have pushed to phase out Libor and replace it with new standards. In the U.S., the secured overnight financing rate (SOFR) has been established as the heir to Libor, but progress in the transition has been slow.

Along the way, the U.S. Treasury has been considering whether to issue floating-rate notes based on SOFR. We think initiating such issuance would let the Treasury use its immense platform within bond markets to lend credibility to the new reference rate, as well as to foster needed growth in the trading of SOFR-linked debt and derivatives. It would also expand the options available to address both U.S. borrowing needs and investor demand for floating-rate instruments.

Slow transition

The Federal Reserve and other global regulators have pushed to do away with Libor, which represents an estimate of the average interest rate a bank would be charged by other banks for an unsecured loan for a certain period. By contrast, SOFR – a measure of the cost of borrowing cash overnight collateralized by U.S.

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