On April 3, 2018 the Federal Reserve Bank of New York (“Fed”) started publishing its three repo rates: the Secured Overnight Financing Rate (SOFR), the Broad General Collateral Rate (BGCR) and the Tri-Party General Collateral Rate (TGCR). For an overview of differences between the composition of each of the rates please refer to our prior post.
Previously, in March, the Fed released “a time series of the volume-weighted mean rate of the primary dealer’s overnight Treasury general collateral repo activity. . .” which it calculated from its surveys of the primary dealers. The Fed also released indicative historical rates for the SOFR rate going back to August 2014. It also indicated it was going to investigate providing a longer historical period for the SOFR rate. The historical data appears to be a response to comments received during the request for comment phase where three commenters requested historical data for SOFR in order to assist market participants in structuring margin requirements on derivative instruments that reference SOFR and assist in comparisons to other benchmarks.
On April 10th, the Fed released a statement stating that it had received feedback that the bilateral repo volumes included in the SOFR rate appeared higher than expected. The Fed stated that it was looking into the bilateral repo data received from the data provider and accessing whether or not there is any impact on the rate or volumes. No previously published rates will be revised as part of the review but if a change is made on a going forward basis revised historical data will be made available according to the statement. The rates and volume on April 9th were: 1.75%/833B for SOFR; 1.70%/341B for BGCR and 1.70/330 for TGCR. Therefore, it appears that certain market participants are questioning the extent of the volume gap between SOFR and the two other rates. Stay tuned for more on this issue!
Update (04.16.2018): The Fed posted a notice today stating that, following a review, the SOFR rate’s volume was too high due to “forward-settling overnight Treasury repo transactions” being inadvertently included in the rate. Accordingly, the SOFR rate going forward will be adjusted to exclude such forward-settling repo transactions. The Fed released data on how the SOFR rate would have been calculated had it excluded such transactions from April 2 to April 12th. Lastly, the Fed undertook to update the historical rate figures it previously provided on its website for SOFR.
Good Day. DR2