Fed Seeks Reference Rate Input
The Federal Reserve Board has requested public comment on a proposal for the Federal Reserve Bank of New York, in cooperation with the Office of Financial Research, to produce three new reference rates based on overnight repurchase agreement transactions that would be secured by Treasuries.
The most comprehensive of the rates, to be called the Secured Overnight Financing Rate, would be a broad measure of overnight Treasury financing transactions and was selected by the Alternative Reference Rates Committee as its recommended alternative to U.S. dollar LIBOR. SOFR would include tri-party repo data from Bank of New York Mellon as well as cleared bilateral and GCF Repo data from the Depository Trust & Clearing Corporation.
“SOFR will be derived from the deepest, most resilient funding market in the United States. As such, it represents a robust rate that will support U.S. financial stability,” said Federal Reserve Board Governor Jerome Powell.
Another proposed rate, to be called the Tri-party General Collateral Rate would be based solely on tri-party repo data from BNY Mellon. The final rate, to be called the Broad General Collateral Rate (BGCR) would be based on the triparty repo data from BNYM and cleared GCF Repo data from DTCC.
The three interest rates will be constructed to reflect the cost of short-term secured borrowing in highly liquid and robust markets. Because these rates are based on transactions secured by U.S. Treasury securities, they are essentially risk-free, providing a valuable benchmark for market participants to use in financial transactions.
Comments on the proposal to produce the three rates are requested within 60 days of publication in the Federal Register, which is expected shortly.
Volumes of sustainable debt surpassed $1.6 trillion in 2021.
Growth was driven largely by the 19% rise in interest rate products.
The consolidated quote system for corporate bonds has raised funds to expand outside the US.
U.S. Treasury has issued over $450bn of 20-year bonds since May 2020.
SEC requires a review of data on non-listed securities before initiating or resuming quotes.