I have been quoting an incorrect 3 month SOFR rate on the website. I have been quoting a backward looking average rate—when I should be looking at a forward looking rate. Sorry for being wrong on this–not the 1st time for sure.
There is a substantial difference in the 2 rates–like 60 basis points. At this moment he forward looking rate is at 4.66% and this is the rate that should be used for floating rate preferreds and baby bonds.
Finding the forward looking rate is difficult–I found it on Bloomberg TV, which is where 2whiteroses suggested one could find it. I didn’t find it elsewhere although if one wants to pay a subscription fee there are other spots.
Thanks to those that discussed this recently which has helped clarify this issue.
Tim-
So…. if I understand you, the SOFR rate used in calculating the floating rate on FtF bonds and pfds is 3-month Term SOFR, which is a forward looking rate, rather than any trailing rate? Is that what you are saying?
How can the SOFR used in these contracts be, essentially, a guesstimate on what SOFR will be over the coming 3 months? Do these FtF contracts specify 3-month Term SOFR?
Numbers–as I understand it the rate I had been looking at is an average rate looking at the past–that is why it was not dropping even after the Fed funds interest rate cut. Now after even a few days the ‘average’ 3 month SOFR is dropping fairly sharply. One will have to read the prospectus for each issue and see what is specifying. Unfortunately I am out of the office all week and will be looking into this more deeply when I am back so I don’t want to get more specific BUT in the end it won’t matter to me (personally) since no matter the rate I will hold the issues I hold –whether they pay (for example) 10% or 9.5% is only of minor consequence. On the other hand we all would like to know what we are being paid.
More to come next week–sorry I am limited in research time this week.
Numbers, re “how can he SOFR used in these contracts be, essentially, a guesstimate on what SOFR will be,” you also could ask how the worldwide market for futures contracts (of all sorts) is nearly $12 trillion.
A whole heckload of people have developed an industry based on guesstimates of future prices for all sorts of things, SOFR rates among them. And companies which tie the future rate of debt contracts to which they are committed have chosen to trust the folks who estimate those SOFR rates.
Here’s a site with the current rate and the term rates:
https://www.sofrrate.com/
Or you can get them from the NY Fed (including Excel/XML download):
https://www.newyorkfed.org/markets/reference-rates/sofr
https://www.newyorkfed.org/markets/reference-rates/sofr-averages-and-index
It’s been mentioned a few times already (and is the point of Tim’s post) but unfortunately neither of these sites give the correct rates to be used for calculating floating rate preferred stock. Yes, it might seem that the “90 Day Average SOFR Rate” would be the same as the “3M Term SOFR Rate”, but it’s not. Yes, the names are terribly close, but they are measuring different things.
The numbers given by the Fed are historical, which is to say, they look at the last 90 days. The numbers you want are produced by CME, and are forward looking: they are estimates for the next 3 months based on futures prices. If you use the wrong one, your numbers might be off by quite a lot. Here’s another link to a site that explains the difference: https://www.pensford.com/resources/the-different-sofr-rates
Re the Monday Term SOFR posts…. I also have been a morning user of the CME Term SOFR site that seems to be easy bookmarked for quick data.
FWIW …. here are Weekly Avgs ( M-F ) for some recent past…..
Sept 20 ….. 4.788%
Sept 13 ….. 4.939%
Sept 06 ….. 4.973%
Aug 30 ….. 5.043%
Jly 26 ….. 5.273%
Jun 28 ….. 5.334% …… Repeat, above are weekly avgs ……
A ” Garbage Paste” from the CME TERM SOFR site ….Sept 23 = 4.66795%
CME Term SOFR Rates Values
BMR compliant, aligned with the IOSCO principles, and ready to use in cash market products, CME Term SOFR Rates provide a forward-looking measurement of SOFR rates, based on market expectations implied from leading derivatives markets.
Date CME Term Sofr (%) Sofr * Sofr Averages *
1 Month 3 Month 6 Month 12 Month Overnight Index 30-Day AVG (%) 90-Day AVG (%) 180-Day AVG (%)
23 Sep 2024 4.85478 4.66795 4.33369 3.8235 – 1.15977346 5.28012 5.34924 5.38705
20 Sep 2024 4.85722 4.69125 4.35139 3.83149 4.83 1.15930684 5.32901 5.36547 5.39533
19 Sep 2024 4.91991 4.75327 4.39343 3.85402 4.82 1.15915165 5.34575 5.37097 5.39812
18 Sep 2024 4.96086 4.81353 4.4438 3.86454 5.33 1.15898005 5.34541 5.37085 5.398
17 Sep 2024 4.96482 4.81963 4.43627 3.84556 5.38 1.15880688 5.34341 5.37029 5.3976
Last Updated 23 Sep 2024 05:00:00 AM CT
I’ve been using the CMEGROUP site as it is the final source for the Term SOFR settings and have had no issues. I did get a free log in to the CMEGROUP site and it has been working as expected. It’s now bookmarked and I just click to bring it up. Sometimes I have to agree to not use the data for commercial benefit.
https://www.cmegroup.com/market-data/cme-group-benchmark-administration/term-sofr.html
Yes, that appears to be the official source for SOFR according to the Federal Reserve’s guidance:
“For all other LIBOR contracts, including consumer loans, SOFR (in place of overnight
LIBOR) or term SOFR published by CME Group Benchmark Administration, Ltd. (in place
of one-, three-, six-, or 12-month LIBOR), plus the statutorily prescribed tenor spread
adjustment.2”
https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20221216a2.pdf
Yes that’s the CME proper link…. My problem has been twofold with their login – they have forced me to install Duo in order to sign in with dual verification, and, in addition, for whatever reason, using CMEgroup.com seems to blow up Firefox in particular, my default browser. I do not like installing apps on my cell based on the demands of a single website, particularly one like Duo which I didn’t know….. And the Firefox login only seems to be the worst of the brower login experiences using Win 10… They all seem to get bogged down to a crawl while waiting for CMEgroup to do whatever they feel they have to do before I get to use the site… nobody else has this experience?
FWIW, I’ve been using https://fred.stlouisfed.org/series/SOFR which to me sounded like the “correct place to go” since it’s the FED’s.
While this is the “correct place to go” for the most up to date information on the current overnight rate, it’s unfortunately not the right SOFR to use when calculating reset rates for floating preferred issues. When the rates are steady and predicted to stay steady, the difference isn’t that large. But when the rates are changing and expected to change more in the future, the difference can be significant.
If you compare the charts at FRED with the ones Nikolas linked (https://www.barchart.com/stocks/quotes/SOFERMM3.RT/interactive-chart) you’ll see places where they are 50 bp off from each other. I’d suggest this one as the easiest to use, although it’s a couple days delayed: https://www.chathamfinancial.com/technology/us-market-rates. You are looking for “3 Month Term SOFR” at the bottom of the chart on the bottom right.
What I haven’t found is a “scrapable” source that I can import automatically into Google Sheets. I had one that worked for a while, but it’s been changed to use Javascript so it doesn’t import. I wonder if the barchart.com one can work for this. But if anyone has a non-password authenticated straight HTML source, please post it!
I used this one . Looks like it maybe quote for the previous day https://www.barchart.com/stocks/quotes/SOFERMM3.RT/interactive-chart
Thank you thank you thank you, Nikolas! I knew there was another easier to access site for the right info other than cmegroup.com, but I had forgotten where it was…. Your link be it….. Ironically, I already had it bookmarked but not bookmarked where it should have been.