SOFR
Amplify ETF Trust - Amplify Samsung SOFR ETF
Mentions (24Hr)
0.00% Today
Reddit Posts
Mentions
>The margin rate is 5.25% in year 1, then 6.25% in year 2. for comparison the lowest mortgage rate we could find was 6.99. 1. That margin rate is not fixed. It is probably expressed as something like SOFR+0.9%, going to SOFR + 1.9% in a year. 2. JPST yields less than your margin rate. It is unlikely that you have significant unrealized capital gains in JPST. Why not just sell $380k of JPST and improve both your cash flow and eliminate the uncertainty in your margin rate by eliminating the margin loan?
the LOI is a prepay agreement (debt repaid in kind + margin ((SOFR + % or an additional $/bbl in the pre-agreed price)) its quite essential to understand the terms in order to assess the impact of this LOI and also would be interesting to see if the LOI is with a commodity trader because most likely will also concede the offtake rights impacting also the market reaction of such agreement
Let's say you have $1M in stock earning the market average of 8%. A typical securities-backed line of credit (SBLOC) is the SOFR + 3%, which today would be 7.5%, and a lender will give you a credit line of half the value of the securities: $500K. So then year two, assuming you've spent the entire line of credit, you've earned $80K in stock gains and paid $37.5K in interest on your line of credit for a net $42.5K gain. And ideally you don't spend the entire line of credit and just add the $37.5K interest to that line of credit -- or you spend the line of credit on something that generates income like a rental unit. Yes, it's a dicey proposition, but not a net negative if you're playing the odds.
True .. you are kind of touching on fwd vs spot variance which can be important when you consider correlation with rates ... but I think this is 2nd or even 3rd order unless you are looking at long dated trades. Also, if rates don't really move (or you haven't hedge it) it shouldn't matter. Imagine the spot is 100, rates are 4% ... the 1yr fwd is 104 , you buy a combo k=104 (for 0 naturally) Spot goes to 90, if rates stay at 4% , the new fwd is worth 93.6 so you have a 10 loss spot, or a 104-93.6 loss fwd. 104-93.6 = 11.4 / (1.04) = 10.4 / 1.04 = 10 so you are indifferent. Assuming rates and stocks are positively correlated, in a crash, you expect rates to drop (say to 2%) The fwd is 90 \* 1.02 = 91.8 ... for a loss vs the fwd of 12.2 ... / (1.02) = 11.96. You need to buy some SOFR futures , or a 1y rcv'r swap at the original 4% to cover you.
People will buy at 5, 5.15, 5.20, 5.30 etc etc. Gundlach may be right, but short long end is a very crowded trade and equittly markets are nearing exhaustion. Equity yield - risk free rate is something like -2.5%. Positioning by pension funds in bonds is at a low of 85-15. Lower than in 2007 and 2020. Long end is oversold on fiscal and inflationary concerns. Term premium for the entire curve has gone UP even with all the rates cut, simply cause it trades on inflation concerns of 2021, fiscal side of OBBB and supply comming into the market this year. He said long end may drop 20pts, which kills the real economy, so growing out of debt becomes a moot strategy. Dollar short is also at historic highs (that does make sense), and foreign investors are vary of being long dollar by being long bonds. With all that said, I dont think FED allows 6 in 30s. They will twist at 5.5 and just outright buy at 5.75 which I dont think we will see this year. Cutting rates will just add extra pressure on the long end and this is why Powell is not doing it, in addition to data still being good. We'll see, but bonds seem way oversold and equities way oberbought. SOFR is going down and US 5Y CDS is below 2023 high and even lower than in July 2011 when we had the debt ceiling "crisis".
Also a difference between how that profit is made. Everything is always about growth and outlook in the market. 100k profit from a service being sold that has a market edge and is growing users 50% YoY is much different than 100k profit from cash sitting in a treasury account collecting SOFR and doing nothing.
xAI started marketing a lot (5bn) of expensive (SOFR+700 TLB and 12% bonds) debt today, and at a discount right from the go... In case anybody is wondering why Musk folded. Also it's being marketed by Morgan Stanley in case anybody is wondering why they released a note yesterday upping the price target and calling the spat "strategic".
My trading these days is just to do something Retired at 47 after 25yrs. trading. Today I just pay ,mostly, in rates futures. i'e been playing in SOFR, SONIA,10's,2's EUR, USD, and STIRS( short term rates under 1yr).
Sir, this is a CASINO. But yes, I've been looking at it daily since mango took office. It's been acting like broken ECG since he announced tariffs on penguins. What I really look at is the SOFR, which never failed to predict rate cuts. It's been soft for a week or so. We're definitely heading towards a recession, but shhhhh... you're killing the vibe !
Those portfolios are long term holds. I don't trade by the minute, hour or even daily. Right now have a number of swaps on - selling 10' buy2's ,,,,,selling 10's but 180day SOFR, SELLING 20's and buying EUR. Selling 180day SOFR buying MBB . If you were paying attention you may have seen a block trade come across for ZTU5
HEY Genius-you may want to watch CME Block Trades today in SOFR and STIRs, you may learn something. But then, you made 23%, so you are the MAN.
I have been short 10's and 30's , long 2's and 3's a bunch of SOFR swaps, selling current buying 180day, staying out of equity futures, occasionally dipping my toe in the overnight foray, otherwise low profile.
Oh also the office for financial research also is the data behind LIBOR’s successor overnight rate SOFR
…sigh it’s just all so boring. Yes the Japanese government owns most of their own debt (52%) most of the ETFs and Stocks and are Majority share holder of Japan Post Bank. Doesn’t matter. Japan can’t get to 1.00% Interest rates without blowing up their economy, housing market and the world economy. 0.50% is their limit. They were barely able to do an increase from 0%to 0.25% and then 0.50%. Japan CANNOT sell its holdings of USTs without damaging the JPY. They did that in 2021ish and look how fair the yen fell…USDJPY160. Honestly should be around 180+ BUT Japan is a currency manipulator like no other. Based off technicals, the real value is 1 USD =300 yen plus. US treasuries are backed by natural resource rich collateral(hard assets like land, precious metals,oil &etc )via the USA government. There are a ton of countries out there, Japan being one of them(EU&etc), that have next to nothing in natural resources. So they buy USTs and then use them as reserves in there banks, which then leads to the whole fraction reserve banking. Then there’s the whole EU dollar system which used artificial USDs printed via the City of London, to buy said collaterals and used the LIBOR rate to control overseas USD interest rates. That ended in 2019 due to Powell and SOFR. USA in control of both international and domestic USD interest rates. The Japanese are running to USTs cause they know they will have to pick either their local market or their currency and we all know what’s more important (hint it’s not the currency). They will default eventually due to the debt and reset. All these so called foreign buyers of JGBs are just Japanese companies located in various countries are selling their assets that they hold to send money home to buy up JBGs. Under the law here, it’s still listed as “foreign buyers”. They’re just kicking the can down the road until they can’t. In actuality, they’re caught in the quote on quote “Doom Loop”. Japanese companies and people are super cash rich compared to the rest of the world. However, they’ll more than likely use these reserves for the reset. Even if they do sell USTs, USA can absorbed that like nothing and japan will collapse. USDJPY would skyrocket and Japan WILL become the new Argentina. TLDR; No they won’t sell, can’t raise interest rates to 1.0% and The BOJ IS the economy of Japan.
You could do money market accounts which loosely function as overnight repo agreements following the SOFR rate.
Ain't nothing is risk free. But stocks still have to beat the now fairly handsome returns in bonds. The spread between SOFR and 30 year is such that buying bonds and levering them by putting them on repo line is a fairly lucrative trade now.
The federal reserve has never had control over long term rates. They have power over the federal funds rate, which has a nearly 1:1 impact on other short term rates like SOFR, LIBOR, or the yield on short term bonds. These rates have still responded to fed action exactly as expected (compare the trailing yield on money market funds with the federal reserve's target rate for an example of this). The interest rate of long term securities, while still affected by the federal reserve, is also subject to many other much more speculative factors. Things like projected inflation over the life of the bond, comparative expected market performance, and perceived risk will have a great deal of sway on long term rates; these are the factors causing long term rates to spike. You're right to say that the fed has fairly little control over what is happening to long term rates right now, but this is simply a function of other influencing factors being very dramatic right now, rather than any loss of power from the fed. If they wanted 6 month treasuries at 1% right now, they could still very much make that happen.
For options on futures it's like $2.50 per contract. So to open a spread it's $5. I opened a position on SOFR futures with 20 lots and paid $100+ just in fees. It'll be another $100 to close it.
Not quite the same, but many adjustable rate loans were based on Libor, which shut down last year. SOFR and to a lesser extent SARON were what providers switched to.
Bae stop STIR(ING) up some drama and get over here to the SOFR
I would probably sell the stuff I like the least or that I think would have the chance of the lowest returns in the near future. Somewhat tax agnostic there. Or if you can see if the firm either will lend the money or has a preferred lender (which is common in professional service firms). Or you can look at a SBLOC/PAL (not margin loan). As it seems like some brokerages (Schwab) will do about 80-100 bps over SOFR. Or there are short box trades. But this is assuming you have enough equity in the portfolio to get a big enough line for the buy in.
PCE on weds is gonna be cold so i think the play is long 2Y or SOFR. with less conviction long stock, playing it through the first "deal" announcement, selling it right there on the spike cuz further fake-deal deal announcements will get faded. but really just long the short end on realization that the immediate risk is recession over inflation.
Correct. If you go to the performance tab on these ETFs, theyll show you "growth of 10k" historically and these ETFs just look like a flat diagonal line. Their yield is tied to whatever the current SOFR rate is (federal funds short term lending). It will be that minus the expense ratio. CLIPs expense ratio is 7 bps. SGOVs is 9 bps. It is important to turn on DRIP with these, otherwise the dividends will sit as cash. That wouldnt be terrible, often your core cash position in a brokerage is set to some money market sweep fund, so youd still get yield. For example, SPAXX is the default fidelity cash sweep MM fund, its 30-day SEC yield is 3.98% cagr currently. But, if you were in CLIP, your 30-day SEC yield is 4.18% and the yield is state tax exempt unlike SPAXX. If you had a state income tax of 5% like illinois has, your net of state tax yield on SPAXX drops to 3.78%.
Also, CDOs haven’t gone anywhere, just renamed. And if the bond rates continue to increase, the collateral underwriting plenty of CME SOFR term loans will be margin called. Maybe I’m just paranoid. Idk
Not many contracts got out beyond two years. SOFR goes out to ten years, but idk if it's practical to make a box spread in them. Let's assume it is for the hypothetical. If COXX (lol) constructed box spreads on some futures contracts ten years to expiration and held to maturity, it would average about five years duration. And then if treasury yields rose 1% across the curve, COXX would fall ~5% and recover to its previous trajectory in five years. Same as a treasury note fund with average duration five years.
It will be. The thing is that it won't come in time to save the S&P from more than a 30% decline. Watch the SOFR - IORB (you can put that in TradingView). If the SOFR rises above the IORB for unexpected reasons (not end of quarter), then the Fed will be forced to step in. There is a Fed put, it's just further out of the money this time.
Standard margin loans in U.S. brokerage accounts are floating‑rate debt. The broker sets a base lending rate (often derived from the broker‑call rate, SOFR, or prime) and adds or subtracts a tiered markup that depends on the size of your debit balance. Is there a scenario in the near future where floating rates could spike?
Putting aside the political implications, I think you'll also start to see the decoupling of the Fed Funds rate and loan/bond rates. The Fed moves the Fed Funds rate lower and nothing happens to loan rates. The banks just pocket the arb and SOFR and fixed rates don't move down correspondingly.
It does not indicate in the sense that there would be a magic causal relation ship. It is just the fact that economic agents expectations are about a recession starting in the future. This is because the 10 y swap rate is the average of the 3 months SOFR rates on a 10 y period. For instance, 3 M in 3 M or 3 M in 6 M. Because it is expected that the FED will lower in the future there is this downwards shift. So it is the reflection of market participants expectations.
SOFR rate has been increasing steadily as well, and with elevated volume, it's not about investors anymore, banks and lenders are fucking spooked, if yields spike one more time we could have a bond market crash in our hands
Blowing up PE? PE is a diverse asset class invested across every industry and type of business out there. Short of legislation that says you can’t use debt to buy a company, there’s nothing that could specifically “blow up PE” across the industry that isn’t also blowing up the entire market. For example, if SOFR went to 20%, PE would be in deep trouble. So would most companies with debt. And the general economy would tank across asset classes (even housing) with rates that high, dragging down earnings for everyone else. So less of a PE specific risk and more of a general economy risk.
Which bank is gonna blow up as 3Y SOFR evaporates
Google basis trade and SOFR. It was unwinding and because it involves banks ability to intralend it threatened to break the market. Intervention is almost always required at that point or sellers have no buyers and markets break.
Yeah the money market is for the overnight and <45 days CDs and treasuries - this will be closest to SOFR and will stay with the fed rate. 10 year yields are high now, maybe a good time to get in. But this is WSB a 10 year investment horizon is not really the game here
Following a jump in the U.S. Treasury yields, the Secured Overnight Financing Rate (SOFR) swap spreads have widened, signaling a "serious liquidity" issue, according to Ark Invest's Cathie Wood. Experts believe that only the government and the Federal Reserve's intervention would be able to contain this crisis. More BULLISH NEWS 
It doesn’t necessarily signal that banks don’t want to lend, sharp yield increases widen the spread and the banks can’t adjust the SOFR swap rate with the rapid treasuries selling.
asis trade, a strategy exploiting price differences between Treasury bonds and futures, has collapsed dramatically. Collapse has triggered a massive multi-trillion dollar liquidation event, disrupting markets. 3-year SOFR swap spread, a Treasury market stress indicator, reached a record low. U.S. yields spiked despite declining stock prices, revealing hidden financial system risks. Unwind scale estimated at $800 billion or more, raising systemic instability fears. Federal Reserve may need to intervene with a $1.8–$1.9 trillion bailout facility to stabilize markets.
10Y soaring, 3Y SOFR cratering, 🥭 rambling Bears delight
I think something has broken. Lots of talk on X about SOFR-FFR swap spreads blowing out, which is actually to autistic even for me to understand. Gist of it seems to be that the credit markets are starting to seize up. HY Credit spreads have been screaming about that for a week or so. Could see Fed and other CB’s step in pretty quickly if this isn’t just typical X doomposting.
Bro I DARE you to go look at 3Y SOFR Lehman brothers ‘08 moment coming soon
What's the purpose of SOFR3M short fut dec 12 in this ptf? Pretty unusual in retail brokerage?
No, the financing costs are not included. It costs SOFR plus a spread. Yes leveraged funds lose a lot in a downturn. No, it's not necessarily a bad idea for a buy and forget investor with very high risk tolerance to use 2x leverage.
The management fees work the same as any fund. They will take a little out of the fund every day at a rate of 1% per year. The financing costs (SOFR plus a spread) are on top of that and are embedded in the derivatives the fund uses (swaps and futures).
Been digging into the leveraged loan and CLO (Collateralized Loan Obligation) space, and the cracks are starting to show. While CLOs were the darlings of structured finance over the past decade, some of these instruments are now teetering toward failure—and here’s a breakdown of why. 1. Junk-Rated Loans Are Everywhere A growing number of loans in CLO portfolios are rated B- or lower. With default rates ticking up and recovery rates trending down, a lot of these “leveraged” borrowers are struggling to stay afloat. If defaults accelerate, the equity and even mezz tranches are toast. 2. Thin Cushion, Big Trouble Unlike during the 2008 financial crisis, CLOs today have thinner equity cushions and looser covenants. That means less protection for investors as things go south. Some of the newer CLOs issued in the last couple years (especially 2021–2022 vintages) are particularly exposed. 3. Repricing Risk Refinancing risk is huge. Many of these underlying loans were issued when rates were near zero. Now with SOFR pushing 5%+, these companies can’t roll their debt without major financial pain—if they can roll it at all. 4. Downgrade Waves Coming We’re already seeing rating agencies start to reassess portfolios. When loans get downgraded, it impacts the overcollateralization and interest coverage tests in CLO structures. Fail those tests, and cash flows start getting diverted away from equity and junior tranches. 5. CLO 2.0 ≠ Bulletproof People love to say “CLOs made it through 2008!”—sure, but the 2.0 structures we have now aren’t the same, and the macro backdrop is very different. Corporate balance sheets are weaker, and the Fed isn’t exactly in a mood to bail out overleveraged borrowers. Bottom Line: I’m not saying the entire CLO market is going to implode, but some of these structures—especially lower-rated tranches—are going to eat losses. If you’re holding equity or BBB/BB tranches in certain vintage CLOs, you might want to dig into the loan book and stress test some scenarios.
When the spread falls while negative, the difference (spread of 30Y swap - 30Y Treasury YTM) becomes more negative, implying a widening spread, no? Now, wouldn’t a widening spread imply either 1) SOFR swap rates dropping OR 2) Treasury yields rising Which would contradict your bank liquidity stress proposition / show a lower demand for treasuries? I’m rather confused by the article
Do you mind explaining how SOFR is used? Is it variable ? Say you borrow 100k now and get a SOFR + 1.9%. How do the payments look over time?
They are better, for young people, if used correctly. By using them, you can have 100% stock exposure or even more while also holding alternate diversifiers like treasury bonds and managed futures. Its not a simple 3x. Its daily rebalanced. It also costs SOFR + ~0.5% per year per point of leverage. Also they just have plain higher expense ratios
Adding to my own reply. Schwab offered SOFR + 1.9%.
What problem are you actually trying to solve? Analyzing leverage carry costs against brokerage margin doesn't really make sese since brokerage margin is usually much higher. Getting 150bps + SOFR with brokerage margin isn't likely to happen with most brokers. If you want to simulate a LETF without using a LETF - you can (1) roll futures, (2) roll synthetic long futures, or (3) use a synthetic loan with a box spread to generate leverage to acquire the underlying. A LETF isn't using brokerage margin - they are constructed by holding some smaller version of the index and then using swaps or futures.
Money only flows into the RRP, let me correct that. Money “should” only flow into the RRP facility when the excess needs to be drained. Two market problems with “should”. 1. Dealer balance sheets shrank post GFC. The spread on trades with MMFs is tiny, a bp or two. Since repo is massively balance sheet intensive, tough to justify much repo use. UBS had a 700bln+ sized repo book in 2007, when I retired that was 110bln. All the shops cut. In addition, dealers (investment banks) had to report balance sheet monthly. My first 15-18 years at a dealer, we reported quarterly only. This means “window dressing” occurred monthly, not just on QEs. Take a look at the historical chart for the RRP, all the dates prior to 2021. You’ll see the same thing. Periodic use on month ends, large use on quarter ends (but we are talking 10-20bln, nothing like we’ve seen). My point of the history lesson is the RRP “should” only be used in times of excess liquidity, but with market reform, MMFs rely on it when dealers can’t provide. So the “public repo” (the RRP) is a fail safe of collateral for MMFs when “private repo” doesn’t work. 2. The Fed changing the award rate. This is makes a huge impact to RRP use. With the RRP being flat to FFR, the award rate is literally setting the daily funding rate, not as much as when it was +5bps, but look at the numbers. You can safely say that the new SOFR rate has been where ever the RRP award rate has been since it started. Pretty sure that wasn’t the intention of those setting up the SOFR as the new Libor rate that would represent “market forces” but I digress. If the Fed lowered the award rate to -5bps, that would make private repo more appealing to dealers since it would widen the spread. Move it to -10 bps and the RRP would only see life on month ends, if that. But to the point of your concerns, with RRP draining effecting bond financing. I don’t think there will be any concerns. Where the real concern would be is if MMF balances return to even remotely close to pre-pandemic levels. They were 3 trillion prior to Covid. Makes sense they’d move higher with all the stimulus packages and people day trading all the time (Largest user of the RRP is Fidelity and they just sweep peoples brokerage accounts into SPAXX (their largest fund) and SPAXX is the largest individual user of the RRP. If MMFs lost 4 trillion, there would be panic at the Treasury. Bill bids would dry up and yields would be forced higher, regardless of where the Fed would want them to be. This isn’t a concern for the near term, but one would think that the cash balances should move closer to norm.
SOFR futures breaking down, but futs up. I think this pump is fake (& 🦄🌈)
That rate is outrageous. You should be at SOFR + 2. Schwab or Interactive Brokers will get you much better pledged asset line rate…
I personally wouldn't use a HELOC or 401k loan. You could use a pledged asset line from your broker. Starts at SOFR+4.4% at Schwab for example but I've heard that it can sometimes be negotiated. If you have an unleveraged PM brokerage account and know how to do it - you can create a synthetic loan via a box spread. That should close to a risk-free rate under 5% for 2 years at the moment.
bond rates / SOFR went up, did they not?
until SOFR goes above IORB, this is moot.
ChatGPT gave like 8 different reasons why this could happen but the most plausible is: # 3. Demand and Supply Dynamics * **Treasuries**: Heavy issuance of Treasuries by the U.S. government to finance deficits can increase supply, leading to higher yields. If demand doesn’t keep pace, yields rise further. * **SOFR Swaps**: SOFR swap rates reflect expectations for future short-term rates and are influenced by hedging activity. Heavy demand for hedging could suppress SOFR swap rates relative to Treasuries. Since interest rates are somewhat in flux and unpredictable at the moment, there's probably a lot of hedging to stabilize borrowing. I also have no training in finance and used a machine to explain it to me, so keep that in mind.
That's not something textbooks will discuss. If you want to earn money with books, you need to keep them simple. It's also not something that matters for retail traders. Voladynamics has some good examples https://voladynamics.com/products/vola-curves. Generally, you do fit to market prices (see for example https://quant.stackexchange.com/a/73891/54838), but the surface is what you will use and manipulate to derive quotes. For OTC, you can look at https://quant.stackexchange.com/a/74179/54838 which shows a Bloomberg screenshot from ICAPs contributor page for vol quoted swaptions and USSN015 Curncy, which is the ticker for the 1y5y USD Swaption ATM Normal Vol quote for 3m LIBOR with OIS discounting. Libor is disco timed now and you would have SOFR swaptions but the idea is the same. https://quant.stackexchange.com/a/68066/54838 is the equivalent for FX.
99%. I keep most in stocks with less than 10% in real estate via my primary home. I keep $30k in cash and when things go crazy and I need more I'll pull from my Loan Margin Account (LMA) which Schwab calls a Pledged Asset Line (PAL) for SOFR +1%. I'll use the money and then I pay the asset line down. Either slowly via income or I sell stocks when it's tax advantageous.
1. The Anatomy of an Equity Swap A. Contractual Structure Equity swaps are bilateral over-the-counter (OTC) derivatives contracts. The key components of the swap agreement include: 1. Notional Principal: • The reference amount used to calculate cash flows. • Notional principal is not exchanged but serves as the basis for computing the payments. 2. Legs of the Swap: • Equity Leg: Tracks the total return of an equity index, individual stock, or basket of equities. Includes: • Price return: Capital appreciation or depreciation of the equity. • Dividend yield: Income derived from dividends, typically grossed up to account for withholding taxes in synthetic replication. • Non-Equity Leg: Typically linked to: • A floating interest rate (e.g., SOFR, LIBOR, EURIBOR). • A fixed interest rate. • Other reference rates (e.g., inflation-adjusted rates). 3. Reset Periods: • Payments are made at predetermined intervals (e.g., quarterly). During these resets: • The equity leg’s total return is calculated. • The interest leg’s payment is calculated. • The net cash flow is exchanged (one party pays the other). 4. Maturity: • Equity swaps typically have a fixed tenor, such as 1 to 5 years, though shorter and longer durations are possible. Contracts can also be terminated early via mutual agreement or novation. B. Calculation of Payments For each reset period, the payments are calculated as follows: • Equity Leg (Total Return):  • Interest Leg (Floating):  At each reset, the two payments are netted, and only the net amount changes hands. 2. Detailed Applications A. Portfolio Hedging 1. Hedging Beta Exposure: Institutional investors often use equity swaps to hedge portfolio beta (systematic market risk). For instance: • If a fund holds $100M in U.S. equities and is concerned about a short-term market downturn, it can enter a swap where it pays the S&P 500 return and receives LIBOR + spread. • This neutralizes the portfolio’s sensitivity to market movements without requiring the liquidation of the underlying assets. 2. Cross-Asset Hedging: • An equity swap can overlay an interest rate hedge, e.g., by swapping an equity return for a fixed or floating rate to align equity risks with broader portfolio liabilities (common in pension funds). B. Leverage and Synthetic Long/Short Positions Equity swaps provide efficient leverage by requiring only margin or collateral (a fraction of the notional) rather than full funding: 1. Synthetic Long: • An investor can pay SOFR + spread to receive the return of a stock/index. This replicates owning the equity without committing capital upfront. 2. Synthetic Short: • By paying the equity return and receiving SOFR + spread, an investor creates a short exposure without needing to borrow shares. C. Tax Arbitrage and Withholding Optimization Equity swaps are often structured to optimize after-tax returns: 1. Dividend Substitution: • Rather than holding equities directly and incurring dividend withholding taxes, a swap replicates dividend income without direct ownership. 2. Cross-Border Tax Efficiency: • Investors in jurisdictions with unfavorable tax treaties can use equity swaps to gain equity exposure while minimizing tax drag. D. Regulatory Arbitrage 1. Balance Sheet Efficiency: • Banks and insurers may use equity swaps to optimize regulatory capital requirements by holding derivatives rather than direct equity exposures. 2. Ownership Limits: • Swaps bypass direct ownership restrictions (e.g., foreign ownership caps in emerging markets). 3. Valuation of Equity Swaps A. Mark-to-Market Valuation The mark-to-market (MTM) value of an equity swap is derived from: 1. Equity Leg Value: • The current price of the equity/index versus the agreed-upon price. • Adjusted for dividends accrued during the period. 2. Interest Leg Value: • Present value of expected future interest payments. The net value is:  B. Discounting • The cash flows are discounted using the appropriate risk-free rate curve (e.g., SOFR curve) to reflect the time value of money. 4. Advanced Use Cases A. Basis Trades Traders exploit pricing inefficiencies between different markets. For example: • Dividend Arbitrage: Capturing pricing differences between physical equities and swaps
You can follow SOFR futures to see what the market is pricing in. On TOS the contract is /SR3Z24 Up is more cuts, down is no cuts (or raises) Someone else could probably explain it better than I could where it is possible based on the number to know how big of a cut to expect.
A lot of the rates I get for commercial loans are based on the SOFR rate. So it is like 3% on top of that rate. Other banks do it like 3% on top of the 10-year treasury, which is mostly defined by the fed rate...so the fed rate does effect mortgages a lot? Did I miss something?
I'm tripping about the interest dude, I thought they had secured it AT SOFR. It's SOFR +5%, no, I didn't have a car loan higher than that lol, deleted the comment
SOFR is 4.81% currently. You have a car note with 10%+?
* Entered into a $150 million 5-year credit facility at an industry-leading interest rate of SOFR +5.00%. * Retired $225 million senior secured debt, due April 30, 2025. * Authorized $50 million for the repurchase of Subordinate Voting Shares from September 23, 2024 to September 22, 2025. JUST BUY GTBIF
GTBIF: Third quarter revenue of $287 million increased 4% year-over-year. Cash at quarter end totaled $174 million. Third quarter GAAP net income of $9 million or $0.04 per basic and diluted share. Third quarter Adjusted EBITDA of $89 million or 31% of revenue. Nine months cash flow from operations of $152 million, net of $88 million of tax payments. Opened four RISE Dispensaries in the quarter: three in Florida and one in New York. Entered into a $150 million 5-year credit facility at an industry-leading interest rate of SOFR +5.00%. Retired $225 million senior secured debt, due April 30, 2025. Authorized $50 million for the repurchase of Subordinate Voting Shares from September 23, 2024 to September 22, 2025.
GTBIF: Third quarter revenue of $287 million increased 4% year-over-year. Cash at quarter end totaled $174 million. Third quarter GAAP net income of $9 million or $0.04 per basic and diluted share. Third quarter Adjusted EBITDA of $89 million or 31% of revenue. Nine months cash flow from operations of $152 million, net of $88 million of tax payments. Opened four RISE Dispensaries in the quarter: three in Florida and one in New York. Entered into a $150 million 5-year credit facility at an industry-leading interest rate of SOFR +5.00%. Retired $225 million senior secured debt, due April 30, 2025. Authorized $50 million for the repurchase of Subordinate Voting Shares from September 23, 2024 to September 22, 2025. Kinda soft IMO
To be clear the only post that matters should be: "TERM SOFR says 25bp cut". That's it. Nothing else in this space matters. Everything else are politicized numbers that no one trusts.
Who cares? Is there a "bet" on the unemployment rate? Where can I invest in unemployment rate? TERM SOFR is a $3trillion market. It is god. It has spoken. THAT is what you trade, THAT is what drives your investment. Not some "unemployment rate" that gets revised quarterly.
TERM SOFR dictates what the Fed does and signaled 2 months ago that we are getting a 25bp cut. Why listen to narrative when you can just have REAL TIME information? I love how I get downvoted for this...fyck all the poor noobs here who downvote me. Stay poor losers.
For European markets, you could use the ESTR (euro short-term rate) which is the analogon to SOFR in the US.
RFR rates. For the US, that's SOFR swaps. All exchanges (like LCH, CME etc) use RFR rates (SOFR, ESTR,...) for discounting and Price Alignment Interest (PAI) calculations. Treasury shouldn't be used. See https://www.reddit.com/r/quant/s/lfu2yoArCC for a quote from Hulls book. https://quant.stackexchange.com/a/74098/54838 has details about this as well as a link to a paper by Feldhütter et al. who discuss this in more detail. For example Bloomberg doesn't even offer treasury rates as a choice in any of their derivatives pricing engines (OVME, OVML, CDSO, DLIB etc.). That said, it's fine using treasury rates just to get an idea how computations work. I suggest starting with European options that don't pay dividends to simplify computations and move on from there.
SOFR is now the modern and preferred way to estimate the risk-free rate for financial models, including implied volatility. The Federal Reserve Bank of New York publishes SOFR rates daily on its website.
Because CRE valuation from 2019 is 30% of everyone's 401k. Every loan to CRE was initiated by Wells/MS/BofA...and sure it might be some ETF behind it, and might be some fund that built into it.... End of the day it's 30% of every major banks balance sheet. They've done no write-downs on any of it, even if it's non-performing they refuse (just like 2008). Are you ready for a 30% cut to the SP500? If you are minimum wage at the wendy's you don't care...if you have a 401k you do care. Valuations on CRE went up in 2020...cuz free money train pulled into town - 1.5%+SOFR loans on CRE for 20yrs. Many just bought more CRE, expecting it would come back to normal within 5yrs. Instead ...SOFR went from 0.25 to 5.25 in 1yr (2022), BUT the market didn't for CRE. But just like sub-prime...the REITs will walk away and leave them to the banks. The banks will fail, this is 5x the GFC in size...so bailout time, but first the stock market shock - and your retirement accounts. Can you blame the 1%'ers for trying to get everyone to go back/sign leases? They have the most to lose...but you will lose too.
Yes exactly(SOFR replaced LIBOR) as a result of public data manipulation which was the premise of this stupid so called debate. Haha you even forgot what started this chain. Yea man you are OLD and you do need Alzheimer med and I thank you for proving my original point which is public data manipulation.  boomer. I think it's time for early nap and change your dippers you stupid fuck.
>stupid fuck? You're a sad clown new to the market. And live in a fantasy. You're LIBOR scandal says absolutely nothing. hAvE yOu eVeR hEaRd oF MKuLtRa? We don't even use LIBOR anymore we have SOFR.
> Same overblown doom arguments were made last year when there were bond vigilantes pushing 10Y to 5%. I'm neither a bond vigilante nor a doomer. A 10-year rate around 5.5-6% is normal in historical terms. We had this in the early-mid 90's during high economic growth with very little fiscal spending contributing to GDP. normal. > And Fed easily brought it down to 3.6% with not much effort or hurting the fight on inflation. The Fed doesn't have control over long-term rates. This is a common misconception. The FFR is the overnight rate and it directly influences T-bills and SOFR. Yet as we're currently seeing the 10-year, mortgage, and credit card rates have moved in the opposite direction. > I really don't think I'm going to lose the bet. And yes... some form of YCC is now a permanent part of modern monetary policy and it really isn't a problem at all. I think you would because you're assuming inflation is a beast the Fed has control over. If it was *just* a monetary phenomenon, then that would be a feasible hypothesis. Unfortunately, the economic conditions of the 2010s that allowed them to maintain ZIRP at a small price will no longer exist by the end of this decade. Beyond the supply-side dynamics, the Fed also has no choice but to accept a higher level of inflation. Akin to the 1940s, the main way the government will address its debt burden is to reduce it to a nominal value - they will inflate it away. > That doesn't mean they are going to flatten the curve to 0 but continuing to manage the curve to maintain liquidity and financial stability is just good policy. You only need to "maintain liquidity and financial stability" if the system is inherently unstable.
Lmao every single time - I correct someone on some pretty simplistic mistakes, they immediately reach for insults and "trust me bro, I know the real professionals" nonsense. Something about people who work in finance vs those who don't, the ones who do credentialize themselves by sharing information. The ones who don't rely on insults and unsupported claims of expertise. > The Fed uses SOFR to determine what their next move should be. They say so as much Can you kindly link me anywhere in a speech or what have you where anyone indicated this was the case? >I've actually had a conversation with Fed officials ABOUT the aberration caused by the change from LIBOR to SOFR in the Financial Stress Index. This is unrelated to the topic at hand, I'm glad you got to ask a fun question when a governor stopped by your finance survey course though. At a basic level, SOFR is just an approximation of overnight repo rates, and overnight repo rates are almost entirely driven by the FFR - because the FFR is the uncollaterized rate, the repo rate typically sits just a bit under this rate but is almost entirely driven by it. So it's very very strange that your interpretation is the exact opposite, and leads me to believe that mayhap you should do a bit of studying before getting so argumentative online.
Well you're also a clown who uses Fedwatch approximates instead of SOFR actuals? But insults aside; I'm right and you're wrong. The Fed uses SOFR to determine what their next move should be. They say so as much and unlike you, I've actually had a conversation with Fed officials ABOUT the aberration caused by the change from LIBOR to SOFR in the Financial Stress Index. So I can 100% tell you that the Fed follows SOFR. Period.
> The better rationale is that it's "rarely wrong because the Fed follows the US02Y yield." This is the most backwards understanding of expectations theory I've ever seen put to words lmfao >So whatever SOFR does is the market telling the Fed what to do. It is objectively not that. At all. You can literally track the shift in futures pricing between various statements and press conferences, as they all react to new information and sentiment shifts being communicated by the Fed.
The FED watch actually drastically deviates from SOFR somehow; for instance it might say 30% chance of a 50bp move even though SOFR has given it a 100% chance. So I rely on SOFR - but Fedwatch is ok too. The better rationale is that it's "rarely wrong because the Fed follows the US02Y yield." So whatever SOFR does is the market telling the Fed what to do. I think the distinction matters.
>If you sign up for free you can see the rates. Or you can just access the futures pricing directly here: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html SOFR is slightly different than the FFR, but for all practical purposes they can be used interchangeably. All they're doing is calculating the probabilities based on futures pricing. So it changes every day, but it's rarely "wrong" because the Fed is intent on effectively communicating it's intent to markets - and uses future pricing as a proxy for how well it's doing it's job.
TERM SOFR says there's a rate cut 25bp. That's all that matters.
I'm balls deep into SOFR 3-Month Future Options... And I'm down! 😃😃😃
Because it's not as rosy or easy as you make it seem. First of all, do you know that SDS is paying holders 3x the SOFR rate due to gains on equity swaps and gains on cash equivalents? So, when you buy VOO you pay nothing, but since SDS is an inverse, its holders are gaining 3x the borrow rate, equivalent to \~15% per year. Since you are short, you're also paying 15% annualized daily to "borrow" 2x the shares, not by paying cash, but through outperformance of the SDS NAV. There is no "free" leverage. There is also the issue of compounding. The long ETF or long stock gains through compounding. An inverse of that does not compound, but is actually opposite, your max gains when you short falls every time the long underlying rises, unless you re-short more of the inverse to increase maximum gains. A bigger issue is inverse compounding when the long ETF falls. By holding long, when stocks fall, it's better because you have a maximum loss, but since SDS is a daily inverse, the compounding kicks into gear when the underlying stock/ETF falls, compounding upwards. If you get caught shorting at this point, you'll lose much more than the underlying. The biggest problem is since you're shorting and when stocks fall, your losses actually compound instead of having a max loss, your position and margin maintenance actually increases instead of fall when stocks fall. This is a huge problem because as SDS rises and compounds, not only do you lose more on cash (losses are taken from cash), but your risk and position also balloons. If SDS goes up 2x, not impossible considering it happened during the pandemic, and it could even go up 3x like it did during 2008, then your -25% SDS short becomes -50% and your cash becomes 75%. Assuming you only had cash, the SDS position goes from -25% to -67%, with no guarantee it will stop going up. Since I know you're a degenerate gambler because that's who people shorting inverse ETFs are, you're probably holding a bunch of other stocks to get even higher leverage. The assuming you start with 100% VOO, -25% SDS, what happens during a crash, even a small one like the pandemic crash, is 100% VOO dumps -30%, cash loss of -25%, SDS gain of 100%. The result is -50% SDS, 45% stock portfolio, very close to a margin call. The last issue is psychology, sure you might not face a margin call right now or if VOO dumps 20%, but when your cash becomes negative because SDS doubled and you're paying margin rates on top of the HTB fees and SDS swap rates, when SDS is as high as your portfolio, putting you at 3x leverage even with a small 30% crash, will you hold through or will you be forced to cover at the highs of SDS and the bottom of the market? This is why "investors" don't use this strategy more. It's incredibly risky, incredibly difficult to manage, underperforms the market if the market compounds, and when really bad crashes happen, you lose even more.
At the end of September there was a big spike in the Secured Overnight Financing Rate. This is natural, to an extent. There’s often a bit of money tightness around the end of the quarters, and especially the end of the year, as banks are keen to look as lean as possible heading into reporting dates. So SOFR (and other measures of funding costs) will often spike a little around then. But this was FAR bigger than normal Bank of America’s Mark Cabana estimates that this was the single-biggest SOFR spike since Covid-19 wracked markets in early 2020, and points out it happened on record trading volumes. Cabana says he was initially too hasty in dismissing the spike as driven by a short-term collateral shortage and unusually large amounts of window-dressing by banks. In a note published yesterday, he admits to overlooking something potentially more ominous: reserves seeping out of the banking system. We have long believed funding markets are determined by 3 key fundamentals: cash, collateral, & dealer sheet capacity. We attributed last week’s funding spike to the latter 2 factors. We overlooked extent of cash drain in contributing to the pressure. The increased sensitivity of cash to SOFR hints of LCLOR. LCLOR stands for “lowest comfortable level of reserves” Unfortunately, when reserve levels drop to uncomfortable levels, we tend to find out very quickly, in unpleasant ways. Cabana’s mention of 2019 is a reference to a repo market crisis in September that year, when the Fed missed growing hints of tightness in money markets. Eventually it forced the Federal Reserve to inject billions of dollars back into the system to prevent a broader calamity In other words, the recent SOFR spike could be a hint that we are approaching or already in uncomfortable reserve levels, which could cause a repeat of the September 2019 repo ructions if the Fed doesn’t act preemptively to soothe stresses.
No, I said they are *not* LOCs, and they do *not* use SOFR. The standard SBLOCs marketed to the mass affluent use SOFR as their benchmark. Those are very different products than the products used by the 0.1 percent for tax/estate planning, which are not lines of credit and do not use a benchmark interest rate.
You clearly state "not sensitive to benchmark interest rate" but then state the securities are backed LOCs using a rate of SOFR which as I'm saying SOFR is the benchmark rate. It's just a confusing statement on our part. They are taking out loans against the SOFR rate aka the old LIBOR rate aka it's just a rate banks are willing to cover each other for...WHICH the FED follows so it's all the same rate
SOFR does not have anything at all to do with the hybrid debt/equity products used in “buy, borrow, die” planning. It simply isn’t relevant. If SOFR is your benchmark rate, you’re looking at a pure debt product marketed to the mass affluent.
SOFR is the benchmark rate; it's right every time. So I think it's just a bit silly to say "not sensitive to benchmark interest rates". SOFR was within 50bp cut 2 to 3 weeks before the FED cut 50bp.
I have about 300K$ on TLT plus another 114k$ in cash. And 1 future option call over SOFR 3-Month strike 97$ for December '25 (both future and option expiration) And it's down like 42%, it's just 800$ now, not too bad given I'm only one contract in... But I was VERY close to drop 100k$ on those Future Option Call.
I feel called out, thanks trading gods I didn't decided to go all in into $TLT calls as I have planned. I waited and I'll go with SOFR SR3 Future Options instead. But I'll wait until the end of the month. Maybe there won't be a recession. And calls on TLT or SR3 are getting fffffffffed
A variable rate loan/LOC at SOFR + 1-2 percent is not a feasible long-term strategy. The carrying cost of interest will very quickly eat up the tax savings, and you need to free up cash to pay the interest - which for ordinary people, usually involves taxable income. You generally need the annual carrying cost to be at or below inflation for the strategy to be feasible long-term. Anything above 3.5 percent is no good for long-term plays.
The products used in this type of planning are not sensitive to benchmark interest rates. The standardized securities backed loans/lines of credit marketed to the mass affluent (see e.g. IBKR) usually use a rate of SOFR plus 1-2 percent. The “buy, borrow, die” products issued by investment firms to people worth hundreds of millions or billions of dollars have interest rates approaching zero. The firm makes its money on stock appreciation rights associated with the underlying collateral, not interest. These products are rarely callable before the client’s date of death. Sometimes, the client is required to put up more collateral if the underlying collateral plummets in value. This isn’t usually a problem because the proceeds from the product are typically invested in assets custodied with the firm that issued the product anyway.
To add, the wealthy pay interest that is a few basis points over SOFR. It is not like going to your local bank or credit union or a little-people loan. You can save a lot of money by being wealthy.
> Sure... although it's really bizarre that someone that claims to understand valuation does not understand the impact of using even a 3.7% risk-free rate to a DCF? Please. This is at least the fifth time you've gotten into an argument with me under an alternate account - you're incapable of hiding your tells - and it's quite tiring to hear the same insults when you're using said models in a naive fashion. Bluntly, your usage of the discount rate is backwards. I'm not sure how you managed to do this as I assume you know how the discount rate works. If you apply a 3.7% discount rate or any discount rate higher than the baseline to a DCF model, you get a reduced valuation. Lower discount rates raise equity valuations. Your baseline discount rate for the top equation is 0%. Your conclusion only make sense if you were finding the delineation point where a stock with 1% growth in cash flow and 0% terminal growth would justify a 3.7% discount rate at ~$44 over 10 years. That is, its growth would have to be 5%. Or you were highlighting the impact of a 3.7% discount rate to the base case and comparing its complete removal. Let's go a little deeper. Since you dislike WACC for legitimate reasons, then the cost of equity should be your discount rate: after all, we are talking about holding equity stock, not holding debt or preferred shares. That would be the 10-year Treasury yield + (beta x equity risk premium). * Historically the 10-year has stayed rangebound between 4.25-4.75% when the FFR was at 2.50-3%. The FFR dictates SOFR and short-term rates, but it has very limited power over long-term rates. * We'll assume beta is equal to the S&P i.e. 1. Therefore the discount rate would be 4.50 + (1 x (5-4.5)) = 5. Alternatively, let's be generous and assume you meant 2.75% - the difference between the peak FFR and the FFR target. The two problems are that the 10-year Treasury yield is the basis of the risk-free rate for your DCF model (and the baseline for deviation is not zero), plus the 10-year yield does not move proportionally with the FFR. > A company with as little as 5% growth and 0% terminal growth will be worth 41x today's cashflows. That number skyrockets if you allow for more growth (likely for many tech names) and instead of 0% growth you allow for at least inflation growth of 2% or so. No, that applies to a *0% discount rate*. The lower the risk-free rate, the lower the discount rate - and the higher the valuation. > I'm sorry. If you do not understand that tail risk is less, chances are you do not understand how the modern Fed works at a basic operational level, or all the myriad of changes both the financial system and more importantly Fed have undergone in just the last few years. The possibility of economic catastrophe has been lessened at the expense of making the system more fragile and more dependent on intervention and creating new tail risks. I'm sorry but if you don't understand that, you don't understand complex systems theory and emergent behavior. In fact, we've already seen this play out over the last 4 years. Additionally, I find it hilarious that you'd come to that false conclusion considering I'm the only person on this entire subreddit that talks about the Fed's inner mechanisms at length. Also, I'm the only one who explains how money markets actually operate. > Because he's no longer trying to significantly outperform. He's made it clear he's catering to a group of investors who want stability and steady appreciation with a lot less risk than the typical stock. Besides, he's not selling off the vast majority of his holdings. That's not true. He's talked about this very issue at several conferences. Berkshire's entire problem is that it's so large, the number of companies it can invest in without outright ownership or destroying price discovery is tiny. The companies Buffett used to buy wouldn't give Berkshire enough capital appreciation to register in their quarterly reports, not even if they tripled or quadrupled. This is a similar problem with most large hedge funds, and a big underlying reason why they often fail to outperform the market. They are pressured to prove they can contribute more alpha to clients versus putting money in SPY or QQQ, but they have limits on how types of companies they can invest in. So they end up taking undue risk, chasing momentum, or secretly indexing while subtracting management fees from alpha. > Fair, we seem to agree on that. What is your base case for EOY 2025? I used to be 6100 but I've put my minimum gain to 6300 by EOY 2025. Base case is 6200-6500. I've giving a little wiggle room as some sectors of the economy are underperforming, but it hasn't spread into a general malaise. Again, I'm only bearish on the major indices.