SOFR Analysis

Historical Percentile (Since April 2018)
59th
0.01% Normal Range (3.66%) 5.40%
At 3.66%, SOFR is currently positioned in the 59th percentile of its historical range since 2018. The rate has seen a modest upward trend recently, gaining 4.0 basis points over the last week and 1.0 basis point over the last month. Despite these short-term increases, the rate is down significantly by 76.0 basis points on a year-over-year basis. The current level is well below the historical high of 5.40% but remains above the median of 2.39%. The distribution of trades shows a narrow range, with the 1st percentile at 3.60% and the 99th percentile at 3.75%. This tight distribution suggests that market participants are largely in agreement on the value of overnight cash. The overall trend is classified as stable, reflecting a balanced supply and demand for collateralized funding.

SOFR Term Structure

Tenor Rate 1M (bps) vs O/N
Overnight 3.6600% +1.0 -
30-Day Avg 3.6395% -3.2 -2.1
90-Day Avg 3.6679% -2.1 +0.8
180-Day Avg 3.8171% -9.2 +15.7
Negative vs O/N = curve inversion (easing expected)
The SOFR term structure currently exhibits a relatively flat to slightly upward-sloping profile across the shorter durations. The 30-day average SOFR stands at 3.6395%, which is actually 2.1 basis points lower than the overnight rate. Moving further out, the 90-day average is 3.6679%, showing a slight premium over the 30-day average. The most significant divergence is seen in the 180-day average, which sits at 3.8171%, reflecting higher historical rates from earlier in the year. This curve shape suggests that while immediate funding is stable, the market has recently moved through a period of higher rates that are still rolling off the averages. Investors are pricing in a steady outlook, as the 90-day to 30-day spread is a narrow 2.8 basis points. The flat nature of the front end of the curve indicates that aggressive near-term rate cuts or hikes are not currently anticipated by market participants.

Key Spreads

vs Fed Funds
Fed Funds Effective 3.64%
FOMC Target Range 3.50% - 3.75%
SOFR - Fed Funds +2.0 bps Normal range
Term Structure
30D Avg - Overnight -2.1 bps Curve flat
90D Avg - 30D Avg +2.8 bps Steady
The spread between SOFR and the Effective Federal Funds Rate is currently +2.0 basis points, which is considered within the normal range. This positive spread indicates that the repo market is slightly more expensive than the unsecured interbank market, a typical occurrence in a healthy financial system. Funding conditions appear stable, as evidenced by the $3.116 trillion in daily trading volume. The 20-day average volume is only 0.6% higher than today's figure, suggesting consistent liquidity without sudden spikes in demand for cash. There is no evidence of the repo spikes seen in previous years, as the 99th percentile of trades is only 9 basis points above the headline rate. This stability is crucial for the ~$200 trillion in debt tied to this benchmark. The narrow spread to Fed Funds confirms that the Federal Reserve's management of short-term rates remains effective.
Today's SOFR Rate Distribution (Repo Transactions)
1st: 3.6000% 25th: 3.6400% Median: 3.6600% 75th: 3.7100% 99th: 3.7500%
Distribution of overnight repo transaction rates

SOFR Trend

Historical Context

1 Similar Periods (SOFR +/-25 bps of 3.66%)
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 rate of 3.66% places the market in a neutral regime, far from the zero-bound levels of 2020 or the peak levels of 2023. Historical parallels are limited, with only one period—December 14, 2022—showing a SOFR rate within 25 basis points of the current level. During that historical period, the S&P 500 saw a median return of -1.5% over the following three months but rebounded strongly to +9.5% after six months. Financials and Real Estate sectors typically struggled in the three-month window following that parallel, posting negative median returns of -6.3% and -4.1% respectively. However, the current 59th percentile ranking suggests that rates are slightly above the long-term median, providing some room for normalization. The 52-week range of 3.57% to 4.51% shows that we are currently trading near the lower end of the past year's volatility. This historical positioning suggests a market that has successfully moved past the peak of the tightening cycle.

Bank Implications

Current SOFR levels continue to support Net Interest Margins (NIM) for major money-center banks that benefit from floating-rate loan portfolios. Banks like Goldman Sachs (GS) and Bank of America (BAC) have shown strong performance recently, with GS up 16.3% and BAC up 14.2% over the last month. JPMorgan Chase (JPM) and Wells Fargo (WFC) also maintain positive momentum, gaining 9.8% and 10.3% respectively in the same period. These institutions typically see improved profitability when SOFR remains at these levels compared to the zero-rate environment. The stability of the overnight rate allows for more predictable pricing of commercial and industrial loans. Regional banks, represented by the KRE index, have also performed well, gaining 15.9% over the last six months. As long as funding costs remain stable and the spread to Fed Funds is narrow, the banking sector is well-positioned to capture interest income.

Borrower Implications

For floating-rate borrowers, the current SOFR environment presents a mixed bag of challenges and relative relief. Corporate borrowers like Ford (F) and GE have seen their stock prices rise recently, suggesting they are managing their debt loads effectively despite the 3.66% benchmark. However, REITs like American Tower (AMT) and Realty Income (O) have struggled, with AMT down 4.3% over the last month. The 180-day average SOFR of 3.8171% means that many borrowers with semi-annual reset dates are still paying rates based on higher historical levels. As these averages continue to drift lower toward the current overnight rate, these borrowers may see some marginal relief in interest expenses. Real estate benchmarks like XLRE have managed a 2.8% gain over the last month, but remain sensitive to any upward surprises in the SOFR curve. The high volume of $3.1 trillion ensures that borrowers can continue to hedge their exposure in a liquid market.

Market Outlook

The outlook for SOFR is currently characterized as stable, with the rate expected to track the FOMC's target range closely. With the 2-year Treasury yield at 3.78% and the 10-year at 4.30%, the market is pricing in a relatively flat path for short-term rates. The primary catalysts for future movement will be upcoming inflation data and Federal Reserve policy announcements. Positioning in the SOFR futures market suggests that participants are not expecting significant volatility in the near term. The current volume levels indicate that there is no immediate scramble for liquidity that would drive rates higher. If the Fed maintains the current target range, SOFR is likely to fluctuate within the 3.60% to 3.70% band. Investors should watch for any widening of the SOFR-Fed Funds spread as a signal of potential stress in the shadow banking system.