The SOFR Discount

Category: Finance Seminar
When: 06 February 2024
, 12:00
 - 13:15
Where: Room Deutsche Bank, HoF E.01 or via Zoom

Abstract: The transition from London Interbank Offered Rate (LIBOR) to Secured Overnight

Financing Rate (SOFR) affects the reference rate of floating-rate debt worth trillions

of dollars. Focusing on the primary market for dollar-denominated floating rate notes

(FRNs), we compare the issuance spreads of FRNs linked to LIBOR and SOFR, issued

by the same entity during the same month. After adjusting for the maturity-matched

spread expectations from derivatives markets, we find significantly lower spreads for

SOFR-linked FRNs. We link this SOFR discount to the enhanced price stability of

SOFR-linked FRNs. This is the first evidence highlighting a benefit of the benchmark

transition for debt markets.