Invesco's latest "Global Fixed Income Strategy" publication features a brief entitled, "The bottom line: What may LIBOR's phase-out mean for investors?" They write, "The London interbank offered rate (LIBOR) has long been the benchmark for numerous private-sector interest rates. Now, the US, UK, Europe, Japan, and Switzerland have set out to install replacement benchmarks with greater transparency. We speak with Justin Mandeville, Portfolio Manager and Jacob Habibi, Senior Analyst about the new benchmark rate chosen in the US – the secured overnight financing rate (SOFR) - and what it may mean for investors." Invesco asks, "How was the new rate determined?" Mandeville responds, "In the US, the Fed's Board of Governors and the Federal Reserve Bank of New York assembled the Alternative Reference Rates Committee (ARRC) in 2014 to find a replacement. After three years of carefully studying a variety of alternatives, including two other repo rates -- the Tri-party General Collateral Rate (TGCR) and the Broad General Collateral Rate (BGCR) -- the ARRC chose SOFR, which is the broadest of these options. The Federal Reserve Bank of New York began publishing SOFR in April of this year." The piece also asks, "What is SOFR?" Mandeville explains, "SOFR is a secured, overnight funding rate based on US Treasury repurchase (repo) transactions. It is considered to be one of the most robust indices available since it is based on a high volume of daily overnight transactions. According to Bloomberg, SOFR represents approximately USD800 billion in daily overnight transactions. One of the major advantages of the rate is that it provides market participants with greater transparency into the US Treasury repo market, a vital segment of the US financial system."

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