SOFR Analysis

Historical Percentile (Since April 2018)
59th
0.01% Normal Range (3.64%) 5.40%
The current SOFR rate of 3.64% is within the neutral range, having decreased by 70 basis points over the past year. This decline reflects easing monetary conditions, driven by the Federal Reserve's policy adjustments and a decrease in collateral demand. The rate's position in the 59th percentile since 2018 suggests it is moderately high compared to historical levels.

SOFR Term Structure

Tenor Rate 1M (bps) vs O/N
Overnight 3.6400% -12.0 -
30-Day Avg 3.6582% -8.0 +1.8
90-Day Avg 3.8058% -17.3 +16.6
180-Day Avg 4.0619% -11.5 +42.2
Negative vs O/N = curve inversion (easing expected)
The SOFR curve is relatively flat, with the 30-day average slightly above the overnight rate by 1.8 basis points, and the 90-day average indicating a tightening expectation with a 14.8 basis point spread over the 30-day average. This suggests market anticipation of potential rate hikes or increased credit demand in the near term.

Key Spreads

vs Fed Funds
Fed Funds Effective 3.64%
FOMC Target Range 3.50% - 3.75%
SOFR - Fed Funds +0.0 bps Normal range
Term Structure
30D Avg - Overnight +1.8 bps Curve flat
90D Avg - 30D Avg +14.8 bps Tightening expected
The SOFR-Fed Funds spread is at 0 basis points, which is within the normal range, indicating stable funding conditions. This normal spread suggests that there is ample liquidity in the market, with no immediate signs of stress or collateral scarcity affecting short-term funding.
Today's SOFR Rate Distribution (Repo Transactions)
1st: 3.6100% 25th: 3.6200% Median: 3.6400% 75th: 3.7100% 99th: 3.7400%
Distribution of overnight repo transaction rates

SOFR Trend

Historical Context

1 Similar Periods (SOFR +/-25 bps of 3.64%)
Dec 2022
Forward Returns from 1 Similar Periods
Period SPY XLF XLRE
3 Month -1.5% -6.3% -4.1%
6 Month +9.5% -3.2% -3.4%
XLF = Financials (banks benefit from higher rates), XLRE = Real Estate (hurt by higher rates)
The current SOFR rate is in the 59th percentile of its historical range, indicating a relatively high level compared to its median of 2.38%. In similar past environments, such as December 2022, the S&P 500 showed mixed forward returns, with a notable 9.5% gain over six months, suggesting potential for equity market resilience.

Bank Implications

The neutral SOFR environment supports stable net interest margins for banks, though recent stock performance has been mixed. Banks like USB have benefited, showing an 8.4% monthly gain, while others like WFC have faced declines. Overall, banks may continue to see moderate benefits from current rate levels.

Borrower Implications

Floating-rate borrowers, including REITs and corporates, face stable but slightly elevated interest expenses. Despite this, REITs like O and AMT have shown positive performance, indicating resilience. Corporates may experience pressure on margins, but the impact remains manageable under current conditions.

Market Outlook

The SOFR rate trajectory suggests stability with potential for slight increases, contingent on Federal Reserve actions and economic data. Key catalysts include upcoming Fed meetings and repo market operations. Investors should consider positioning for moderate rate increases and potential equity market gains.