Libor/SOFR basis like ‘free money’ for early movers – GS trader
Sharp narrowing of basis swaps below fallback spreads has failed to open transition floodgates
Derivatives users have been reluctant to take advantage of a sharp narrowing in Libor versus SOFR basis swaps, which have fallen below the credit spread adjustment baked into derivatives fallbacks, to make an early transition to the secured overnight financing rate – leaving some traders perplexed.
On the benchmark’s June 2023 demise, fallbacks devised by the International Swaps and Derivatives Association will re-hitch Libor contracts to SOFR with an additional spread of 26.16 basis points for
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