- We have seen the first SOFR block trade in significant size.
- Fannie Mae have issued another $5bn of SOFR linked debt this month.
SOFR Swaps Are Trading More Frequently
Thanks to our SDR Alerts, I get an email every time SOFR or SOFR Basis trades. Over the month of October 2018, the frequency of these emails has been steadily increasing into my inbox:
I make that 12 swaps so far in the month of October.
To receive these SDR Alerts, you will need to subscribe to SDRView Pro. This is the Clarus dashboard view of swaps as they are reported to US SDRs in realtime. We also provide our subscribers configurable email alerts for particular trades, so you can be alerted immediately when a trade of potential interest hits one of the SDRs. Contact us for a demo or free trial.
The First SOFR block trade
The volumes reported in SOFR swaps had been quite underwhelming – until yesterday. It looked like a lot of test trades, for both basis (vs Fed Funds) and outright were going on.
And then at 14:37 CET yesterday, we get a block trade:
- 2 year tenor.
- Spot starting (T+2).
- $460m+. The trade is only reported up to the block threshold, so we don’t know the exact size.
- Traded OFF-SEF. Shame – this means that we can’t cross check the volume versus SEFView to reverse engineer the uncapped volume.
- Annual payments both sides.
- Fixed rate of 2.7105% (Act/360).
SOFR Basis is Moving
It it also worth noting that the SOFR basis spread has moved quite a bit since we first reported on the trades here and here.
When we first reported, we saw that 1 year SOFR basis was trading at SOFR -1 basis point versus Fed Funds flat. This has since widened to SOFR -4 basis points versus Fed Funds flat. Is that a significant move? It’s hard to say really. These are early days, with a total of just $500m traded in the basis during October. So there is a lot of price-forming still to go – especially when a single 2 year trade has potentially just doubled the total amount of SOFR DV01 ever traded!
SOFR October Overview
In one chart, this is what I believe has traded:
With a bit more colour. During October 2018:
- There have been 10 basis trades and 2 outrights reported to SDRs.
- All basis trades have been in clips of $50m.
- 1y SOFR basis traded 5 times at -4 across 3 separate days.
- 3y SOFR is the longest trade that we’ve seen so far.
But October is really all about the huge block trade we saw in 2y outright SOFR.
Of course, I was intrigued why the sudden two-year outright block trade. So I went searching for some recent SOFR issue. What I found is from the CME SOFR Portal:
- Now that’s a handy table! And far more complete than when I google “SOFR Bond Issues”. Don’t even bother searching “bond rumours” unless you are really into 007.
- I’m surprised that the Fannie Mae issue on the 31st October is on there already – I guess it must already be priced and announced, and the date is the settlement date of the issue.
- So Fannie Mae have just issued another $5bn, meaning that they are now $11bn of the outstanding $16bn SOFR issues!
- Even though the maturities do not match (even closely), I don’t think it is too much of a stretch to imagine that the large 2 year block trade in SOFR was tied to this Fannie Mae issuance.
- Does anyone know if the equivalent table is being maintained for SONIA issues as well?
- October 2018 has been a “record month” for SOFR swaps activity. Hardly surprising!
- Fannie Mae issued $5bn of SOFR linked debt at the end of the month.
- There was the first SOFR block trade – a $460m+ 2 year outright swap that was probably tied to this Fannie Mae issuance activity.
2 thoughts on “SOFR Swaps – Block Trades and Fannie Mae Issuance”
Hi Chris, I enjoy these notes and find them interesting and insightful. Great to see that the first lumpy SOFR trade has gone through. Thanks, Marcus.
Thanks Marcus – glad the article was of interest. Let’s both look forward to seeing more big trades coming through – I’m told to expect more!
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