SOFR Analysis

Historical Percentile (Since April 2018)
58th
0.01% Normal Range (3.64%) 5.40%
Currently at the 58th historical percentile, the 3.64% rate reflects a neutral regime that has seen a significant 71 basis point drop over the last year. The rate is currently testing the bottom of its 52-week range of 3.63% to 4.51%, suggesting a sustained downward trajectory. Trading volumes remain robust at $3.2 trillion, ensuring that the current rate is backed by deep liquidity despite the recent softening in yields.

SOFR Term Structure

Tenor Rate 1M (bps) vs O/N
Overnight 3.6400% +0.0 -
30-Day Avg 3.6719% +1.4 +3.2
90-Day Avg 3.6912% -10.5 +5.1
180-Day Avg 3.9309% -11.9 +29.1
Negative vs O/N = curve inversion (easing expected)
The SOFR term structure exhibits a slightly inverted profile in the near term, with the 30-day average at 3.6719% sitting above the overnight rate. However, the 180-day average of 3.9309% indicates that longer-term historical averages are still working through the system. The narrow 1.9 basis point spread between the 90-day and 30-day averages suggests market participants expect a steady path for rates in the coming months.

Key Spreads

vs Fed Funds
Fed Funds Effective 3.64%
FOMC Target Range 3.50% - 3.75%
SOFR - Fed Funds +0.0 bps Normal range
Term Structure
30D Avg - Overnight +3.2 bps Curve flat
90D Avg - 30D Avg +1.9 bps Steady
The SOFR-Fed Funds spread has compressed to 0.0 basis points, a sign of balanced supply and demand in the overnight secured lending market. This parity suggests that there is no unusual stress in the banking system or collateral shortages that would typically drive SOFR above the effective fed funds rate. Funding conditions are currently characterized as normal, with the rate sitting comfortably within the FOMC's 3.50% to 3.75% target range.
Today's SOFR Rate Distribution (Repo Transactions)
1st: 3.6000% 25th: 3.6200% Median: 3.6400% 75th: 3.7000% 99th: 3.7200%
Distribution of overnight repo transaction rates

SOFR Trend

Historical Context

1 Similar Periods (SOFR +/-25 bps of 3.64%)
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)
At 3.64%, SOFR is moderately above its historical median of 2.39%, yet well below the cycle highs of 5.40%. Historical parallels from late 2022 suggest a cautious outlook for financials and real estate over the next three months, with both sectors previously seeing negative median returns. Conversely, the broader equity market has historically shown resilience over a six-month horizon following similar rate environments, posting a 9.5% median gain.

Bank Implications

Falling SOFR rates typically pressure Net Interest Margins for major lenders like JPM and WFC, which have seen significant one-month share price declines of 10.4% and 16.7% respectively. While lower rates reduce the yield on floating-rate assets, the stabilization of the SOFR-Fed Funds spread helps banks manage their cost of wholesale funding. Banks with diversified revenue streams may weather this neutral-to-falling rate environment better than those purely dependent on spread income.

Borrower Implications

For floating-rate borrowers such as REITs and leveraged corporates, the 71 basis point year-over-year decline in SOFR provides meaningful debt-service relief. Real estate benchmarks like XLRE have already begun to reflect this, gaining 2.2% over the last month as the 30-day average SOFR trends lower. However, corporate borrowers like Ford continue to face pressure, indicating that sector-specific headwinds may currently outweigh the benefits of cheaper short-term financing.

Market Outlook

The current trend for SOFR is falling, with the rate hovering just above its 52-week low of 3.63%. Investors should watch for a break below this support level, which could signal a shift toward a more accommodative monetary regime. Positioning should favor defensive sectors that benefit from lower yields, as the 10-year Treasury at 4.12% suggests the market is still pricing in a relatively high term premium.