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.
Recall that SOFR is the 50th percentile, the median, of the repo distribution. Based on my analysis
of NY Fed data, 37 dates in the 1st percentile (of 774 or about 5% of the time) are negative. Zero
dates were negative in the 25th percentile or above.
The recent trend is certainly toward negative. The last 21 days have had 1st percentile between -1
BP and -3 BP. Over its lifetime, the lowest value was -5 BP on 3/22 of this year.
Source: SOFR data at the NY Fed (https://www.newyorkfed.org/markets/reference-rates/sofr)