The SOFR discount

Sven Klingler and Olav Syrstad

Journal of Financial Economics, 2025, vol. 164, issue C

Abstract: The transition from London Interbank Offered Rate (LIBOR) to Secured Overnight Financing Rate (SOFR) affects the reference rate of floating-rate debt worth trillions of dollars. We provide the first evidence highlighting a benefit of the benchmark transition for debt markets. Focusing on the market for dollar-denominated floating rate notes (FRNs), we compare the yield spreads of FRNs linked to LIBOR and SOFR, issued by the same entity during the same month. After adjusting for the maturity-matched spreads from derivatives markets, we find significantly lower spreads for SOFR-linked FRNs. We link this SOFR discount to the enhanced price stability of SOFR-linked FRNs.

Keywords: Benchmark rates; floating rates; financial regulation; LIBOR; SOFR (search for similar items in EconPapers)
JEL-codes: E43 G12 G18 G29 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X24002125
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:164:y:2025:i:c:s0304405x24002125

DOI: 10.1016/j.jfineco.2024.103989

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().