Big SOFR Issuance in the Summer Doldrums
Prior Week Summary
The most interesting news of the week was the large floating rate bond issuance that was hedged with a SOFR referenced basis swap. The World Bank is reported to have made history early last week by being the first issuer to hedge a floating rate bond deal with a swap tied to the new SOFR index. Students of history may recall that the World Bank is also commonly credited with being a counterparty to the first swap transaction in the early 1980s. It is encouraging to see how quickly the market infrastructure has developed in this space in anticipation of an increase in future demand. While this specific issuance, and its associated hedge, will mature before the big line in the sand at the end of 2021, it is still an important development for liquidity in SOFR futures and the development of a more robust risk management suite for SOFR linked debt. For a more detailed review of the SOFR landscape and the important risk management considerations for the transition, please refer to last week’s Balance Sheet Risk Management webinar available on our website.
In other news, the market was remarkably stable last week as yields across the Treasury curve ended the week within a basis point of where they began. The market is still expecting a 25 basis point rate hike at the September FOMC meeting, with near certain probability.
The Look Forward
The data calendar this week features updates on the state of the housing market, the minutes of the latest FOMC meeting, as well as updates on regional manufacturing activity.
Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Source: Chatham Financial
Fixed Income Snapshot
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