SOFR Analysis

Historical Percentile (Since April 2018)
60th
0.01% Above Average (3.68%) 5.40%
The current SOFR rate of 3.6800% represents a 5.0 basis point increase over the last week, though it remains 3.0 basis points lower than one month ago. Over the past year, the rate has declined significantly by 68.0 basis points from its 52-week high. The current range for the benchmark over the last year spans from a low of 3.62% to a peak of 4.51%. Today's rate distribution shows a tight clustering of trades, with the 25th percentile at 3.66% and the 75th percentile at 3.75%. The 99th percentile reached 3.78%, indicating some upward pressure at the tail end of the funding market. Overall, the rate regime is classified as neutral with a stable trend despite the daily uptick.

SOFR Term Structure

Tenor Rate 1M (bps) vs O/N
Overnight 3.6800% -3.0 -
30-Day Avg 3.6522% -2.0 -2.8
90-Day Avg 3.6766% -3.9 -0.3
180-Day Avg 3.8602% -10.5 +18.0
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 3.6522%, which is actually 2.8 basis points lower than the current overnight rate. Looking further out, the 90-day average is 3.6766%, showing a modest 2.4 basis point increase over the 30-day average. The 180-day average SOFR is notably higher at 3.8602%, suggesting that longer-term funding costs have been stickier. This 180-day average has decreased by 10.5 basis points over the last month, reflecting a gradual easing in medium-term expectations. The relationship between the overnight rate and the 30-day average indicates a curve that is currently flat at the very front end.

Key Spreads

vs Fed Funds
Fed Funds Effective 3.64%
FOMC Target Range 3.50% - 3.75%
SOFR - Fed Funds +4.0 bps Normal range
Term Structure
30D Avg - Overnight -2.8 bps Curve flat
90D Avg - 30D Avg +2.4 bps Steady
The spread between SOFR and the effective Fed Funds rate is currently +4.0 basis points, which is considered within the normal historical range. This positive spread indicates that private repo market funding costs are slightly higher than the unsecured interbank lending rate. Funding conditions appear stable given that the spread is not exhibiting the volatility seen during periods of liquidity stress. With trading volume at $3280.0 billion, there is ample liquidity in the Treasury repo market to support current rate levels. The 20-day average volume of $3142.4 billion further confirms that the current $3.28 trillion level represents a healthy and active market. No significant dislocations are apparent in the distribution, as the 1st percentile remains at 3.62%.
Today's SOFR Rate Distribution (Repo Transactions)
1st: 3.6200% 25th: 3.6600% Median: 3.6800% 75th: 3.7500% 99th: 3.7800%
Distribution of overnight repo transaction rates

SOFR Trend

Historical Context

1 Similar Periods (SOFR +/-25 bps of 3.68%)
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 3.6800%, SOFR is currently in the 60th percentile of all readings recorded since the rate's inception in 2018. This level is significantly higher than the historical median of 2.39%, reflecting the current higher-for-longer interest rate environment. The historical range for this benchmark is vast, spanning from near-zero at 0.01% to a peak of 5.40%. A historical parallel was identified on December 14, 2022, when the rate stood at a similar 3.80%. Following that parallel period, the S&P 500 saw a median return of -1.5% over three months but rallied 9.5% over six months. Conversely, Financials and Real Estate sectors struggled following that historical parallel, with both showing negative median returns over the subsequent six-month window.

Bank Implications

Higher SOFR levels generally support the net interest margins of large lending institutions like JPMorgan Chase and Bank of America. These banks benefit from floating-rate loan portfolios that reset higher as SOFR increases, while their deposit costs often lag. However, recent performance for JPM and BAC shows one-month declines of 1.1% and 2.1% respectively, suggesting other headwinds are at play. Wells Fargo and Goldman Sachs have also seen monthly pullbacks despite the relatively high absolute level of the benchmark. Regional banks, represented by the KRE benchmark, have managed a 3.1% gain over the last six months even as SOFR eased from its yearly highs. The current neutral regime suggests that the immediate boost to bank earnings from rising rates may be stabilizing.

Borrower Implications

For floating-rate borrowers, the 3.68% SOFR rate represents a significant cost of capital compared to historical medians. Real Estate Investment Trusts like Realty Income and American Tower are particularly sensitive, with both seeing monthly declines of over 9%. Prologis has also felt the pressure with a 7.4% one-month drop, although it remains up 15.7% over the last six months. Corporate borrowers with heavy debt loads, such as Ford and GE, have seen their stock prices decline by 13.8% and 17.9% respectively over the last month. The XLRE benchmark's 7.0% monthly decline highlights the broad stress high SOFR levels place on the real estate sector. As long as SOFR remains in the 60th percentile of its historical range, these interest-sensitive sectors may face continued valuation pressure.

Market Outlook

The current trajectory for SOFR appears stable, with the rate remaining well-anchored within the FOMC's 3.50% to 3.75% target range. Market participants will be watching for any shifts in the Fed Funds Effective rate that might signal a change in central bank policy. The 180-day average at 3.8602% suggests that the market is still pricing in some degree of persistence in higher rates over the medium term. High trading volumes indicate that the transition from LIBOR is fully digested and the market is functioning efficiently. Investors should monitor the SOFR-Fed Funds spread for any widening that could signal tightening liquidity conditions. Given the VIX at 25.2, volatility in the broader market could eventually spill over into the short-term funding markets.