Farewell LIBOR, Hello SOFR: Analytical Hurdles & Fixed Income Implications

The main hurdles in transitioning from LIBOR to SOFR are the fundamental difference between the two rates and the need for increased liquidity in the SOFR derivatives market.

The June 30th deadline for publishing USD LIBOR rates for the 1, 3, 6, and 12-month tenors marked a critical milestone in the LIBOR transition process. This date signified the final stages of the LIBOR winddown, as the cessation or non-representativeness of these LIBOR rates triggered fallback provisions in many financial contracts. These fallback provisions outlined alternative reference rates to be used when LIBOR is no longer available.

The transition from LIBOR to SOFR poses several challenges. Unlike LIBOR, which represents unsecured lending between banks, SOFR reflects secured overnight lending backed by collateral. The transition required adjustments to account for differences in risk and tenor.

To begin with, constructing a reliable SOFR rate curve stands as a primary challenge, as it serves as the most critical USD curve, utilized for both projection and discounting purposes. Additionally, calculating accurate rates for Floating Rate Notes (FRNs) requires implementing distinct lookback and lockout methodologies. Furthermore, projecting SOFR term rates, which are widely used for loan products, presents another obstacle. To address these challenges, organisations must develop a robust analytic library and possess strong operational capabilities. This can be achieved either through in-house development or by employing third-party solutions to enhance the necessary functionalities.


  • Market Readiness & Transition Challenges
  • Challenges for FRNs and Loans
  • Term SOFR
  • Calibrating SOFR Curves
  • What is ‘synthetic’ LIBOR?
  • Enhancing Capabilities

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