SOFR Analysis

Historical Percentile (Since April 2018)
60th
0.01% Above Average (3.70%) 5.40%
At 3.70%, SOFR sits in the neutral band and at the 60th percentile since 2018 (historical median 2.38%, range 0.01%–5.40%). Shorter-term moves are mixed: 1M is +2 bps but 3M is -31 bps and 1Y is -66 bps, indicating a recent downward trend from higher levels. Drivers are the Fed’s 3.50%–3.75% target range (Fed Funds effective 3.64%), abundant repo activity (today’s volume $3,310B, +2.3% vs 20-day average), and modest secured funding/emergency demand for Treasury collateral.

SOFR Term Structure

Tenor Rate 1M (bps) vs O/N
Overnight 3.7000% +2.0 -
30-Day Avg 3.6729% +0.9 -2.7
90-Day Avg 3.7127% -10.5 +1.3
180-Day Avg 3.9609% -11.6 +26.1
Negative vs O/N = curve inversion (easing expected)
The curve is effectively flat: overnight 3.7000%, 30-day avg 3.6729% (30D - Overnight = -2.7 bps), 90-day avg 3.7127% (90D - 30D = +4.0 bps) and 180-day avg 3.9609%. Flat 30D vs overnight and small 90D premium suggest the market expects the Fed to hold or modestly ease rather than aggressively tighten. The higher 180D average points to some term premium or issuance/collateral considerations further out. Overall term structure signals limited near-term upward pressure but a modestly higher cost for longer-dated floating exposure.

Key Spreads

vs Fed Funds
Fed Funds Effective 3.64%
FOMC Target Range 3.50% - 3.75%
SOFR - Fed Funds +6.0 bps Above normal - watch closely
Term Structure
30D Avg - Overnight -2.7 bps Curve flat
90D Avg - 30D Avg +4.0 bps Steady
SOFR–Fed Funds at +6 bps falls in the "above normal" band (developer thresholds: +5 to +15 bps), implying modestly tighter secured funding or localized collateral scarcity rather than acute stress. The spread is small in absolute terms and has been stable, supported by robust repo volumes today (+2.3% vs 20-day avg). A widening beyond the +15 bps threshold would be a red flag; for now the spread is a watch item that warrants attention to repo operations and large Treasury flows. Tightening in secured markets would first show up in the overnight–30D and intraday repo rates.
Today's SOFR Rate Distribution (Repo Transactions)
1st: 3.6500% 25th: 3.6700% Median: 3.7000% 75th: 3.7600% 99th: 3.7800%
Distribution of overnight repo transaction rates

SOFR Trend

Historical Context

1 Similar Periods (SOFR +/-25 bps of 3.70%)
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)
SOFR at 3.70% is above the historical median (2.38%) and sits at the 60th percentile since 2018, so current levels are higher than typical but well below the historical max of 5.40%. The data set found one close parallel (2022-12-14 at 3.80%); in that sample SPY fell over 3 months and rose materially at 6 months, while XLF and XLRE were negative across near- and medium-term horizons. The sample is tiny (n=1), so parallels are directional only—use them cautiously when forming positioning decisions.

Bank Implications

A 3.70% SOFR with a small positive spread should be modestly NIM-accretive for banks that re-price assets faster than liabilities. Big banks (JPM, BAC, WFC, GS, USB) are the natural beneficiaries; JPM shows 1D +0.9% although 1M performance is mixed (JPM 1M -1.8%, BAC 1M -6.1%, WFC 1M -8.8%). Benchmarks XLF and regional KRE are down modestly over 1M (XLF -4.2%, KRE -2.2%), reflecting investor caution despite the marginally constructive funding picture for lenders.

Borrower Implications

Floating-rate borrowers face modestly higher secured funding costs versus Fed Funds (+6 bps), and the 180-day average at 3.9609% indicates that longer-term resets remain noticeably more expensive than overnight. Rate-sensitive sectors (REITs) typically suffer when SOFR is elevated; yet the past month shows mixed price action (XLRE 1M +5.5%, O 1M +8.8%), underscoring idiosyncratic drivers. Corporates with large floating exposure should hedge or stagger rollovers—names with short-term sensitivity (F, GE) have shown sharp moves intraday and over 1 month.

Market Outlook

With SOFR trending down over medium horizons but the Fed Funds effective rate sitting at 3.64%, the near-term path looks like a Fed hold or gradual easing priced by markets rather than renewed tightening. Key catalysts: upcoming FOMC communications, inflation prints, quarter-end Treasury issuance and repo operations that can shift secured liquidity. Positioning: modest overweight banks that can capture NIM upside, underweight or hedge rate-sensitive real estate and highly levered corporates, and monitor spreads for any widening beyond +15 bps that would signal funding stress.