Fannie Mae helps the market take another step away from Libor
Fannie Mae has priced more securities that support a transition away from the London interbank offered rate.
The government-sponsored enterprise's latest Secured Overnight Financing Rate transaction includes $2 billion of six-month securities, $1.5 billion of 12-month securities and another $1.5 billion of 18-month securities.
The pricing above SOFR for each tranche was as follows: 4 basis points for the six-month securities, 7 basis points for the 12-month securities and 10 basis points for the 18-month securities.
More than 85% of the securities went to funds with the 2a7 Securities and Exchange Commission designation, which indicates they put their money into investments the SEC considers to be conservative. The remaining 15% went to other fund managers, state and local government funds, investors from the insurance industry or the GSE sector, and commercial banks, among others.
"With this milestone, our objective is to accelerate the development of the SOFR market and we encourage other issuers in the debt markets to follow," Nadine Bates, senior vice president and treasurer of Fannie Mae, said in a press release.
Lenders will need to find an alternative to Libor for their adjustable-rate mortgages, and retool their systems to accommodate it, because it will be phased out by 2021.
Libor is being phased out because it has been based on a shrinking amount of bank activity involving wholesale deposits and short-term commercial paper notes, and been subject to manipulation.
SOFR, which is based on Treasury security repurchase activity, is considered to be a safer alternative and lower rate than Libor.