SOFR Swaps – Block Trades and Fannie Mae Issuance

  • 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.

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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.
  • Cleared.
  • 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.

SOFR Issuance

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?

In Summary

  • 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.

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2 thoughts on “SOFR Swaps – Block Trades and Fannie Mae Issuance

  1. 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.

    1. 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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