Daily compounded averages for SOFR would be published next year under proposal

Three daily compounded averages of a new reference rate – with tenors of 30-, 90-, and 180-calendar days – would be published beginning in the first half of next year as a way of supporting “a successful transition” to the new rate, the Federal Reserve Bank of New York proposed Monday.

The New York Fed said that it, along with the Treasury Department’s Office of Financial Research (OFR), would be publishing the three averages for the new Secured Overnight Financing Rate (SOFR), a benchmark rate developed to replace the long-time standard London Interbank Offered Rate (LIBOR). That rate (like the replacement SOFR) is used for setting the rates on variable rate loans and lines of credit, among other things (including adjustable-rate mortgages, or ARMs). LIBOR is expected to be phased out after 2021.

According to figures provided by the Consumer Financial Protection Bureau (CFPB) last month, the changeover to the new rate is expected to be significant. The consumer agency said that there is an estimated $1.3 trillion in consumer loans with an interest rate based on LIBOR, the bulk which are for residential mortgages.

In addition to publishing the three compounded averages, the New York Fed said it is also proposing to publish daily a SOFR index that would allow the calculation of compounded average rates over custom time periods.

In its release, the New York Fed noted that, in April 2018 working in cooperation with the OFR, it began publishing the SOFR and two other new reference rates based upon transactions in the market for repurchase agreements (repos) secured by Treasury securities.

The New York Fed said it is seeking comments on the proposal by Dec. 4

Statement Requesting Public Comment on a Proposed Publication of SOFR Averages and a SOFR Index