Credit problem: SOFR faces uphill struggle in loan market
Furnishing Libor’s replacement with a credit-sensitive spread is proving to be a Sisyphean task
Over the next several months, the US Federal Reserve will guarantee up to $600 billion in loans to small and medium-sized businesses as part of its Covid-19 relief effort.
The central bank originally wanted the four-year loans to reference its preferred replacement for US dollar Libor, the secured overnight financing rate (SOFR) – doubling at a stroke the amount of US dollar debt linked to the new benchmark.
It wasn’t to be. After a volley of complaints from banks, the Fed backed down and
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