SOFR discounting: CCPs prepare for make or break auctions
Deluge of one-way risk and kinks in basis swap auctions could derail Libor transition milestone
The US dollar swap market is preparing for what could be a momentous weekend in mid-October.
That is when CME and LCH will change the risk-free rate they use to value and pay interest on cash collateral for $134 trillion of cleared US dollar swaps. The so-called ‘big bang’, set to take place between October 16 and 19, will see the effective federal funds rate replaced with the secured overnight financing rate, or SOFR – the Federal Reserve’s preferred successor to US dollar Libor.
The two-step
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