Wells on World Bank SOFR Floater
We learned from Wells Fargo Securities' Daily Short Stuff that the World Bank issued the 2nd SOFR-based floater, following an inaugural offering by Fannie Mae last month. Wells' Garret Sloan and Vanessa Hubbard McMichael write, "The International Bank for Reconstruction and Development (World Bank) priced a $1.0 billion two-year floating-rate security at SOFR+22 basis points yesterday, the first SSA SOFR-linked bond. The SOFR+22 approximates a 3-month LIBOR spread of approximately -5 basis points. This is the second issuer within the past two weeks to issue a security referencing the Secured Overnight Funding Rate as its underlying index. Recall that Fannie Mae issued three floating-rate securities priced over SOFR a couple of weeks ago, a six-month at SOFR+8 basis points, a one-year at SOFR+12 basis points and an 18-month at SOFR+16 basis points." The Wells brief adds, "Some market participants are beginning to speculate that we will see an increase in usage of SOFR with corporate issuers becoming increasingly curious and interested in the rate. An article posted by Bloomberg late yesterday quoted TD Securities as commenting that, 'It's months, not years, before we see a financial or corporate,' issue a floating-rate security priced off of SOFR." A press release, entitled, "World Bank Launches Market's First SSA Secured Overnight Financing Rate (SOFR) Bond," tells us, "The World Bank ... today priced its first Secured Overnight Financing Rate (SOFR) bond. The 2-year USD-denominated benchmark bond raised USD 1 billion from investors in the Americas and Europe. This is the first SSA-issued SOFR-linked bond and represents the second transaction in the market. Proceeds of the bond will support the World Bank's global efforts to end poverty and create opportunity. This latest World Bank bond transaction responds to investor demand for high quality assets and helps develop the market for SOFR – a rate based on transactions in the U.S. Treasury repurchase market and an alternative reference rate to USD LIBOR." The release continues, "There were orders for approximately USD 1.4 billion from 27 investors representing central banks and official institutions (55.5%), and asset managers, insurance and pension funds (22.8%), and bank treasuries and corporates (21.7%). Joint lead managers for this global bond are Citi and TD Securities. The 2-year benchmark has a coupon of SOFR + 22bps, reset daily and paid quarterly with a 4-day lockout and a maturity date of August 21, 2020." The Federal Reserve Board's Randal Quarles comments, "Given its global responsibilities, the World Bank's decision to issue a SOFR note sends an important signal to market participants. SOFR is fast developing into a robust and durable reference rate that is a strong choice for a wide range of cash products." `Crane Data's latest (7/31) Money Fund Portfolio Holdings data shows that 37 money funds from 9 families, including AB, BMO, Columbia, Federated, Fidelity, Goldman Sachs, Morgan Stanley, Oppenheimer, and RBC, collectively hold $4.22 billion in FNMA (Federal National Mortgage Association) SOFR-indexed securities.
