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Are the CME Term SOFR Rates Unbiased Predictors?
Is the CME Term SOFR Rate an Unbiased Predictor? A term or forward value of an interest rate in the ideal world is a perfect predictor of the future value of the rate. For all practical purposes, we focus on differences between the term value and the realized value. For example, the value of a 30 day forward rate observed today can be compared with the actual value 30 days in the future. Historical data can then be used to compute a distribution of differences over a long period of time, such as 6 months or a year. If the…
Are SOFR Negative Values a Problem?
Time to the end of LIBOR: 2 years, 1 month, 21 days. —————————– LIBOR is the mother of all interest rates. SOFR is emerging as its favorite child, so an effort should be made to understand it in some depth. One concern about SOFR has been how close it is to zero, so that conceivably rates could be negative. However, despite a large volume of Treasury repos with negative rates, SOFR remains nonnegative. Repos do occur with negative rates. That’s just a fact of Treasury markets, typically occurring when a Treasury (such as the 10 year) is in high demand.…