Uncertainty around how the secured overnight financing rate (Sofr) will react to interest rate hikes raises the possibility of near-term pricing anomalies and inconsistencies in the commercial loan market, according to Greenwich’s latest commercial lending market insight report.
Nevertheless, Stephen Farrell, audit & assurance partner at Deloitte, says that uncertainty around interest rate rises has not tended to come up as a key consideration on Libor transition between banks and customers.
“Perceived or actual uncertainty over the availability of a Libor rate for the issuance of new products tends be to a greater consideration, notably for corporate customers who perhaps haven’t considered in full how unavailability would impact their interest rate management,” he explains.
Another challenge Deloitte has observed is the ability to forecast interest payments due to the backward-looking nature of risk-free rates.
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