SOFR Hedging for Corporates

Use appropriate strategies for SOFR Hedging with QuantArt

While the Fed has been raising rates to tame inflation, 6M SOFR has climbed up to 3.426 from 0.0601 during the last 1 year. The 2Y, 5Y rates are as around  Respectively. 

Rising interest costs are difficult to bear for any company in a recessionary environment. Hence it is important that SOFR is managed appropriately leading to savings in interest cost while eliminating risk from any further increase in SOFR. 

There are many ideas which are being used by financial institutions and large corporates to achieve lower cost instead of a higher SOFR and elevated credit spreads. 

 For Indian & Global Corporates

Expertise changes the game. QuantArt can help with the following:

Appropriate Strategy

 for SOFR hedging. Evaluate cap floor and other structures for cost reduction and risk optimisation. 

Cost Reduction

on SOFR-based loans


Complete protection from any increase in SOFR and instead of looking to reduce SOFR-based coupons.

Right Rates and Right Pay

Execute SOFR hedging at the right rates.  Ensuring the right pay from banks

Help in documentation

Help in documentation like ISDA and CSA etc.

Libor to SOFR Transition

Transition of existing Loan from Libor to SOFR.  Ensuring the transfer happens at the right spread and with the right clauses. 

For Banks

Expertise changes the game. QuantArt can help with the following:

New SOFR pricing models

SOFR Zero Curves and Bootstrapping

SOFR-based swap pricing 

Connect with QuantArt

We have helped many of our clients in SOFR Hedging. For USD, the benchmark would be the SOFR rate in place of Libor. Secured Overnight Financing Rate (SOFR) – is an overnight rate in the repo market with treasuries as collateral. Hence does not reflect credit risk of interbank funding and also cannot have a credit risk term structure like Libor.

Some of the most common issues faced by our clients where we provide help include

1. All loan documents having fallback clauses identifying that the Banks will agree on the rate in discussions with the Borrower.

2. Risk that the loan document might have a different benchmark and the swap hedge might change to a different benchmark.

3. Pricing impact due to change in benchmark is possible i.e., the initial rate might match, but subsequent behavior of SOFR might be different from Libor and the overall spread over the SOFR could be higher. 

About QuantArt

QuantArt Market Solutions Pvt Ltd is a niche financial markets advisory firm run by ex-investment bankers. We act as an extended arm of the corporate treasuries of our clients and not as a distant advisor.

We help streamline risk management policies, identify and mitigate risks, reduce hedging costs, put in place systematic hedging programmes and undertake treasury capability building

Need Guidance on the same?