The Shift From Eurodollar to SOFR is Accelerating
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Onwards and Upwards

The futures and options markets have in large part accepted the transition to SOFR and the spreads in the markets recognize the fixed relationship between CME Eurodollar futures and options and SOFR futures and options for expiries beyond June 2023.

The increased adoption of SOFR in the over-the-counter (OTC) markets in recent months — SOFR trading increased 78% in August, according to one measure — may have surprised some observers, but the pace of transition has been even faster in the futures and options markets.

That’s because SOFR futures and the SOFR-linked Eurodollar market is expected to provide liquidity for fast growing needs in the marketplace. If market participants are ready to make SOFR futures part of their risk management strategy, the stable 26 basis points relationship and the massive Eurodollar futures liquidity will absorb bigger positions in SOFR futures.

The success of the transition to SOFR in the futures and options markets shows how comfortable the market has become with SOFR and is a powerful indicator of still greater take up of the new benchmark in the OTC markets.

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