Strips Finance

What is SOFR?

SOFR, Secured Overnight Financing Rate is a secured interbank overnight interest rate and reference rate established as an alternative to LIBOR, which is published in a number of currencies and underpins financial contracts all over the world. The SOFR rate on Strips is a great way to speculate on the future U.S. Fed Funds rate.
The SOFR reflects a broad universe of overnight U.S. Treasury repo transaction activity, making it a benchmark for all seasons, regardless of future shifts in market preferences for bilateral versus tri-party repo.
The SOFR is based upon a massive, diverse and fully transaction-based data set, drawn from three sources, with aggregate average daily volume of $808 billion based on third quarter 2017 data.
The SOFR will be published for each U.S. government securities market business day at least as early as 8:00 a.m. Easter Time (ET) on the next U.S. government securities market business day.

SOFR vs Effective Fed Funds Rate (EFFR)

Exhibit 2 displays daily SOFR and EFFR values during (August 22, 2014 through October 17, 2017).
The daily SOFR shows broad similarity to the daily EFFR. On average, daily SOFR is 3.9 basis points lower than daily EFFR.