SOFR Analysis

Historical Percentile (Since April 2018)
57th
0.01% Normal Range (3.63%) 5.40%
At 3.63%, SOFR is currently positioned in the 57th percentile of its historical range since 2018. While the rate is unchanged over the last 24 hours, it has declined by 3.0 basis points over the past week. Looking at the longer-term trend, the rate has dropped significantly by 68.0 basis points over the last year. The 52-week range for SOFR spans from a low of 3.57% to a high of 4.51%, placing current levels near the bottom of that band. Trading volume for the day reached $3021.0 billion, which is 3.3% below the 20-day average of $3125.4 billion. This volume contraction suggests a slight easing in demand for overnight cash, though liquidity remains robust. The rate distribution remains tight, with the 1st percentile at 3.59% and the 99th percentile at 3.72%.

SOFR Term Structure

Tenor Rate 1M (bps) vs O/N
Overnight 3.6300% +1.0 -
30-Day Avg 3.6445% -1.7 +1.4
90-Day Avg 3.6687% -1.8 +3.9
180-Day Avg 3.7957% -9.2 +16.6
Negative vs O/N = curve inversion (easing expected)
The SOFR term structure currently exhibits a relatively flat to slightly inverted shape in the shorter end. The 30-day average SOFR stands at 3.6445%, which is slightly higher than the overnight rate of 3.6300%. Moving further out, the 90-day average is 3.6687%, while the 180-day average sits notably higher at 3.7957%. This 180-day average has actually declined by 9.2 basis points over the last month, indicating a shift in medium-term expectations. The spread between the 30-day average and the overnight rate is a mere 1.4 basis points, confirming a flat curve. Such a structure suggests that market participants expect rates to remain relatively stable in the immediate future without significant upward pressure.

Key Spreads

vs Fed Funds
Fed Funds Effective 3.64%
FOMC Target Range 3.50% - 3.75%
SOFR - Fed Funds -1.0 bps Normal range
Term Structure
30D Avg - Overnight +1.4 bps Curve flat
90D Avg - 30D Avg +2.4 bps Steady
The spread between SOFR and the Fed Funds Effective rate is currently -1.0 basis point, which is considered within the normal range. This narrow spread indicates that the private repo market is pricing risk very similarly to the unsecured interbank lending market. Funding conditions remain orderly, with no signs of the stress that typically widens this gap. The distribution of SOFR trades shows a tight cluster, with the 25th percentile at 3.61% and the 75th percentile at 3.69%. Even at the extremes, the 1st percentile of 3.59% and the 99th percentile of 3.72% remain within the Fed's target range. This tight distribution reflects high efficiency in the allocation of overnight liquidity across the financial system during this neutral period.
Today's SOFR Rate Distribution (Repo Transactions)
1st: 3.5900% 25th: 3.6100% Median: 3.6300% 75th: 3.6900% 99th: 3.7200%
Distribution of overnight repo transaction rates

SOFR Trend

Historical Context

1 Similar Periods (SOFR +/-25 bps of 3.63%)
Dec 2022
Forward Returns from 1 Similar Periods
Period SPY XLF XLRE
3 Month -1.5% -6.3% -4.1%
6 Month +9.5% -3.2% -3.4%
XLF = Financials (banks benefit from higher rates), XLRE = Real Estate (hurt by higher rates)
Current SOFR levels are significantly higher than the historical median of 2.40% but well below the historical peak of 5.40%. A historical parallel is found in December 2022, when the rate was near 3.80% during a period of tightening. Looking at forward returns from similar historical periods, the S&P 500 has shown mixed results with a median 3-month return of -1.5%. However, the 6-month outlook has historically been more positive, with a median gain of 9.5% and a 100% positivity rate. In contrast, the Financials (XLF) and Real Estate (XLRE) sectors have struggled following similar rate prints. Specifically, XLF has seen median 6-month returns of -3.2%, while XLRE has faced declines of -3.4% in the same timeframe.

Bank Implications

For major banking institutions, a stable SOFR at 3.63% provides a predictable environment for managing net interest margins (NIM). Banks like JPM and GS have shown strong performance recently, with GS up 23.4% over the last six months. Higher-for-longer overnight rates generally benefit large lenders who can reprice floating-rate loans quickly. USB and KRE have also seen significant gains of 24.4% and 18.6% respectively over the last half-year. However, the flat curve may limit the profitability of traditional maturity transformation in the short term. Investors should monitor how these banks manage their cost of funds if SOFR begins to drift toward the lower end of the target range. Overall, the banking sector remains a primary beneficiary of the current rate regime.

Borrower Implications

Floating-rate borrowers, particularly in the corporate and real estate sectors, continue to face significant interest expenses. Companies like Ford (F) have seen their stock rise 10.9% in the last month, perhaps benefiting from the stabilization of rates. Conversely, some REITs like American Tower (AMT) have struggled, posting a 6-month decline of 8.6% as high rates pressure valuations. The 180-day average SOFR of 3.7957% remains a hurdle for those looking to refinance older, cheaper debt. While the 1-year change shows a 68-basis point reduction, the absolute level of 3.63% is still high compared to the post-2008 era. Real estate benchmarks like XLRE have managed a 5.3% gain over six months, suggesting some resilience despite the rate environment. Borrowers must remain vigilant as the 90-day average remains slightly elevated at 3.6687%.

Market Outlook

The current rate trajectory is classified as stable within a neutral regime, suggesting little immediate pressure for the FOMC to move. Market participants will be watching for any shifts in the SOFR-Fed Funds spread that might signal liquidity tightening. With the 10-year Treasury at 4.26%, the term premium remains a key factor for long-term positioning. If SOFR continues to trend toward the 52-week low of 3.57%, we may see a rotation back into rate-sensitive sectors like utilities and REITs. However, the current 57th percentile ranking suggests there is still room for rates to fall before reaching historical norms. Upcoming economic data releases will be the primary catalysts for breaking the current sideways trend in overnight funding markets. Positioning should remain balanced until a clearer trend emerges in the term structure.