Regional banks face soaring term SOFR spreads
Bid/offers hit 10bp as dealers price counterparty risk into non-cleared Libor transition trades
US regional banks under pressure from recent interest rate hikes are seeing the cost of hedging their loan books skyrocket due to heightened concerns around counterparty risk and a widespread shift from cleared Libor swaps to more narrowly traded bilateral contracts.
Ahead of Libor’s cessation on June 30, regional banks are moving the bulk of their loans to a term version of the secured overnight financing rate, or SOFR.
Hedging this exposure is proving increasingly costly for smaller lenders
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