SOFR Analysis

Historical Percentile (Since April 2018)
58th
0.01% Normal Range (3.65%) 5.40%
At 3.65%, SOFR is currently trading near the lower end of its 52-week range of 3.63% to 4.51%. The rate has experienced a significant downward shift over the past year, declining by 65 basis points as monetary policy has likely pivoted toward a neutral stance. Recent volatility has been minimal, with the one-month change showing a negligible decrease of only 1.0 basis point. Trading volume remains robust at over $3.1 trillion, though it is currently 2.5% below the 20-day moving average. The distribution of trades shows a tight concentration, with the 25th percentile at 3.62% and the 75th at 3.71%. This narrow distribution suggests that liquidity is well-distributed across the repo market without significant stress at the tails. The current level represents the 58th percentile of all historical SOFR readings since the rate's inception in 2018.

SOFR Term Structure

Tenor Rate 1M (bps) vs O/N
Overnight 3.6500% -1.0 -
30-Day Avg 3.6729% +1.3 +2.3
90-Day Avg 3.6889% -7.9 +3.9
180-Day Avg 3.9021% -11.7 +25.2
Negative vs O/N = curve inversion (easing expected)
The SOFR term structure currently exhibits a flat to slightly downward-sloping profile across the shorter-dated averages. The 30-day average SOFR stands at 3.6729%, which is approximately 2.3 basis points higher than the current overnight rate. Moving further out, the 90-day average is 3.6889%, while the 180-day average remains significantly higher at 3.9021%. This discrepancy between the overnight rate and the 180-day average reflects the substantial rate declines that have occurred over the last six months. The fact that the 90-day average is only 1.6 basis points above the 30-day average suggests that market participants expect rates to remain steady in the near term. Such a flat curve typically indicates a neutral policy environment where immediate further cuts or hikes are not being aggressively priced in. Borrowers utilizing term SOFR products are seeing their interest costs stabilize after a period of significant volatility.

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 +2.3 bps Curve flat
90D Avg - 30D Avg +1.6 bps Steady
The spread between SOFR and the Effective Federal Funds Rate is currently +1.0 basis point, which is considered well within the normal historical range. This tight spread suggests that there is no significant imbalance between the supply of Treasury collateral and the availability of cash in the repo market. When this spread widens significantly, it often signals a shortage of cash or an oversupply of collateral, but the current reading points to a balanced ecosystem. The 1.0 basis point premium for secured lending over unsecured lending is a sign of healthy market functioning. Furthermore, the 30-day average SOFR is only 2.3 basis points above the overnight rate, confirming that short-term funding pressures are absent. Even with trading volumes slightly below their 20-day average, the lack of spread widening indicates that liquidity remains ample. Financial institutions are currently operating in a predictable environment for overnight financing costs.
Today's SOFR Rate Distribution (Repo Transactions)
1st: 3.6000% 25th: 3.6200% Median: 3.6500% 75th: 3.7100% 99th: 3.7300%
Distribution of overnight repo transaction rates

SOFR Trend

Historical Context

1 Similar Periods (SOFR +/-25 bps of 3.65%)
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)
The current SOFR rate of 3.65% sits in the 58th percentile of its historical range since 2018, placing it slightly above the median of 2.39%. This suggests that while rates have come down from their peaks, they remain elevated compared to the post-2018 average. Historical parallels are limited, with only one period—December 14, 2022—showing a SOFR rate within 25 basis points of the current level. Following that historical instance, the S&P 500 saw a median return of -1.5% over three months but a strong +9.5% return over six months. Interestingly, the Financials (XLF) and Real Estate (XLRE) sectors both showed negative returns over the subsequent six-month periods in that parallel. This historical data suggests that while the broader market may eventually find footing, rate-sensitive sectors might continue to face headwinds. Investors should be mindful that past performance during similar rate regimes does not guarantee future results, especially given the unique current economic backdrop.

Bank Implications

For major banking institutions like JPMorgan Chase and Bank of America, the current SOFR level of 3.65% provides a stable base for pricing floating-rate loans. Banks typically benefit from higher rates through expanded Net Interest Margins (NIM), but the recent 65-basis-point decline over the last year may start to compress these margins. We are already seeing this reflected in the one-month stock performance of major banks, with Wells Fargo and Goldman Sachs down 12.4% and 10.8% respectively. The narrow SOFR-Fed Funds spread indicates that banks are not facing unusual costs in the wholesale funding markets. However, the downward trend in the 180-day average suggests that the yield on their floating-rate asset portfolios is gradually resetting lower. While the Financials sector (XLF) was up 0.5% today, the monthly trend remains negative as the market adjusts to a lower-rate environment. Regional banks, represented by the KRE, have been particularly hard hit, falling 11.0% over the past month.

Borrower Implications

Floating-rate borrowers, including many Real Estate Investment Trusts (REITs) and highly leveraged corporates, are seeing some relief as SOFR stabilizes at 3.65%. The 3-month decline of 25 basis points in the overnight rate directly reduces the interest expense for debt tied to SOFR benchmarks. Despite this, REITs like Realty Income (O) and Prologis (PLD) have seen their stock prices decline over the last month, suggesting that the absolute level of rates is still high enough to pressure valuations. Corporate borrowers like Ford and GE are also navigating this environment, with Ford seeing a significant 15.4% drop over the last month. The 180-day average of 3.9021% means that many borrowers are still paying rates based on higher historical levels until their next reset date. For these entities, the transition from the 52-week high of 4.51% toward the current 3.65% is a welcome development for cash flow management. However, the negative one-month performance across many sensitive stocks indicates that the market is still concerned about the broader economic impact of the current rate regime.

Market Outlook

Looking ahead, the trajectory for SOFR appears to be one of stability within a neutral regime, as indicated by the flat term structure. The current rate of 3.65% is very close to the 52-week low of 3.63%, suggesting that the market may have found a temporary floor. Catalysts for future movement will likely include upcoming FOMC meetings and shifts in Treasury issuance patterns that could affect repo market liquidity. If the 10-year Treasury yield remains elevated at 4.23% while short-term rates stay near 3.65%, the curve will continue to reflect a complex outlook for long-term growth. Positioning in SOFR-linked derivatives suggests that traders are not expecting a rapid return to the 4.50% levels seen earlier in the year. The VIX at 23.5 indicates that while the funding market is calm, the broader equity market remains on edge regarding the path of the economy. Investors should watch for any widening in the SOFR-Fed Funds spread as an early warning sign of potential liquidity tightening.