term sofr vs daily simple sofr

In July 2017, the UK Financial Conduct Authority (FCA) announced that it would no longer require banks to submit cost of funds quotes in support of calculating LIBOR, calling into question LIBORs viability and availability. The Term SOFR forward curves represent market-implied future settings for 1-month and 3-month Term SOFR, index rates commonly used in floating rate commercial real estate and corporate financings. SOFR activity is increasing in terms of risk traded. The likely replacement rate in the U.S. is SOFR, the Secured Overnight Financing Rate. to international institutions. LIBOR, a reference rate for more than $300 trillion contracts globally and nearly $200 trillion U.S. dollar contracts, likely will end after 2021. The New York Fed calculates SOFR by taking the volume-weighted median (50th percentile) of transactions in three markets for repurchase (repo) agreements collateralized by U.S. Treasury securities: The New York Fed publishes SOFR at 8 a.m. EST each day. Wednesday, the ARRC announced (HERE) the expectation to endorse CMEs Term SOFR in late July or early August. Conversely, USD LIBOR relies primarily on expert judgment of the LIBOR panels submissions to calculate this rate. Monday, August 2, 2021. Transactions in over-the-counter derivatives (or swaps) have significant risks, including, but not limited to, substantial risk of loss. Term SOFR is an attractive replacement for USD LIBOR because, like LIBOR, Term SOFR allows borrowers and lenders to know the benchmark interest rate on a loan at the beginning (as opposed to near the end) of each interest period by simply looking at the relevant Bloomberg/Reuters page. For further information, please visit chathamfinancial.com/legal-notices. Also published daily: SOFR Averages (backward looking compound average of SOFR over rolling 30, 90 and 180 day periods). You can find the updated data here or on Bloomberg under ticker . Using a forward term rate for USD loans will result in a different market convention than in effect for Sterling loans, where the market convention is to use SONIA compounded in arrears. The mission of the Applied Macroeconomics and Econometrics Center (AMEC) is to provide intellectual leadership in the central banking community in the fields of macro and applied econometrics. What about forward curves?The forward curve available on our website here includes SOFR. Watch Chatham's Managing Partner and Chair, Amol Dhargalkar, discuss key trends for the upcoming quarter like inflation, market volatility, and LIBOR transition. The New York Federal Reserve Bank now publishes SOFR daily, as well as SOFR Averages and a SOFR Index. As an extension of the Secured Overnight Financing Rate (SOFR), the SOFR Averages are compounded averages of the SOFR over rolling 30-, 90-, and 180-calendar day periods. Calculating SOFR: Daily Simple SOFR and Daily Compounded SOFR are pulled and calculated daily, or "in arrears", during the interest period. Since SOFR Average is compounded based on the preceding SOFR prints for the respective term, its often referred to as compounded SOFR set in advance and is the index currently being used on Agency financings. Since Term SOFR is based on implied market expectations, its forward curve is effectively the same as compounded SOFR, so we dont list separate curves. ), it is an overnight, fully secured rate. If that is the case, maybe the Fixed Rate of the Borrowers swap is agnostic to whether the Floating Rate is BSBY or Term SOFR? on 30-, 90 -, or 180- Day SOFR Averages but can use the SOFR Index. For that reason, its often referred to as overnight SOFR. SOFR interest rate. Repo markets, broadly, are those in which banks and other large financial institutions and corporates borrow or lend cash secured by liquid securities, often U.S. Treasuries, for short periods of time, typically overnight. These spread adjustments were fixed on March 5, 2021 at 11 bps for 1M contracts and 26 bps for 3M contracts. Importantly, Term SOFR is a forward-looking set of rates just like LIBOR. All rights reserved. If only focused on a loan portfolio, Term SOFR will (likely) always be lower, but that is why the SOFR Adjustment is there. Term SOFR constitutes forward-looking estimates of overnight SOFR over tenors of one month, three months, six months and twelve months. 1-month LIBOR vs 1-month compounded SOFR. ^WG#D~?SMEEX#TC_/=@~ 3 0 0 0 0 0 2"2"YtV8+JgYtV8+J`H}bs14a`.u0 ln Chatham's experts answer the most pressing questions asked by our clients about how the transition will affect them. This is a simple interest calculation. Whether youre using a compounded average set-in advance or set in arrears, interest rate hedges are available from several counterparties. If the notional is constant, the total interest accrued would be the same as applying the simple average of the SOFR resets at the end of the period. Term SOFR Conventions: (Almost) Just Like LIBOR, Launch of ESG Integrated Disclosure Project, LSTA/Refinitiv Mark-to-Market Pricing Data, Morningstar LSTA Leveraged Loan Index Analysis, conventions for forward looking Term SOFR, Daily Simple SOFR and Daily Compounded SOFR in Arrears Conventions, Implementing the LIBOR Act: Federal Reserves Final Rule Podcast, LSTAs Sustainability Linked Loan Drafting Reference Documents Podcast, Register for The Corporate Lawyers Guide to Credit Agreements, The SECs Safeguarding Rule: Custody and Surprise Examinations (or Worse) for Loan Funds, Recent Sustainable Lending Updates Part 1, Updated LSTA Forms of Credit Agreement; Concept Documents, 2023 LSTA and LMA Joint London Conference, Cybersecurity, Privacy and Data Protection, Corporate Practice of Medicine Financings, Morningstar LSTA Leveraged Loan 100 Index Stats, Monthly Secondary Market Performance Charts (Feb 2023), The SECs Safeguarding Rule: Custody and Surprise Examinations (or Worse) for Loan Funds, Sustainability Linked Loans: Unpacking Sustainability Linked Loans, ESG Considerations and Avoiding ESG-washing Presentation, LSTA Requests Deadline Extension for Comments on the Conflicts of Interest in Securitizations Rule, Administrative Details Form (ADF) (Mar 2 2023), Morningstar LSTA Leveraged Loan Index Analysis (Feb 2023). In the tri-party repo market, a clearing bank sits between broker/dealers that borrow from cash investors (e.g., money market funds, mutual funds, et al.). SOFR (Secured Overnight Financing Rate) is an interest rate published by the Federal Reserve Bank of New York. The table below shows the first, last, highest, lowest and average SOFR interest rate . July 22, 2021 - by Meredith Coffey. SOFR measures of the cost of borrowing cash overnight collateralized by Treasury securities. Term SOFR > Daily Simple SOFR should be the case, since Term SOFR should more closely align with SOFR Compounded In-Arrears. In addition, on July 29, 2021, the ARRC formally recommended the CME Group's forward looking 1-month, . This week we cover SOFR Switch Accelerates; You've Got Custody! The mission of the Applied Macroeconomics and Econometrics Center (AMEC) is to provide intellectual leadership in the central banking community in the fields of macro and applied econometrics. The ARRC recommended the Secured Overnight Financing Rate (SOFR) as the preferred alternate to USD LIBOR. If you click on the link in the table above, you can access a page with the current rates. !0H^1%\JayQ7`IfQHpR ?x$hG!"9?Ak?8OPA^t|3,Sgyvb{,.Q$'jA=s7a4[U;?3h Daily Simple SOFR Rate means for any day, a rate per annum equal to (a) the greater of (i) Adjusted Daily Simple SOFR for such day, and (ii) the Floor, plus (b) the Applicable Margin for such day, in each case changing when and as Daily Simple SOFR or the Applicable Margin changes. Overall, this should be top-of-mind for Lenders to determine how this mismatch will be addressed. But it is also more volatile than LIBOR. SOFR Average can also be used in arrears. CcL;&:l&=,s=-/)b#!'>Y,&s*`xLU?UxN For more information on the SOFR Averages and Indexs publication schedule and methodology, see Additional Information about Reference Rates Administered by the New York Fed. CME Term SOFR Reference Rates Benchmarks The CME Term SOFR Reference Rates benchmark is a daily set of forward looking interest rate estimates, calculated and published for 1-month, 3-month, 6-month and 12-month tenors. A few thoughts below, but at this point I think Lenders need to begin considering how rate options will be discussed with Borrowers. The SOFR Index measures the cumulative impact of compounding the SOFR on a unit of investment over time, with the initial value set to 1.00000000 on April 2, 2018, the first value date of the SOFR. The forward rate is simply the fixed leg of the swap. And thats (mostly) it for the Term SOFR conventions! CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. Commerce Bank offers Term SOFR, Daily Simple SOFR, 30-Day Average SOFR in Advance, BSBY and Prime for new loans and renewed LIBOR . Daily Volume $500 Million (3-month LIBOR) (estimated) Nearly $1 trillion (high correlation to T-Bills) Is that delta enough to make a difference to a Borrower?. The distribution of risk across the curve in SOFR has been fairly consistent since the middle of last year. 3 Sustainable Principles. endstream endobj 2613 0 obj <>/Metadata 165 0 R/Outlines 200 0 R/PageLayout/SinglePage/Pages 2602 0 R/StructTreeRoot 287 0 R/Type/Catalog>> endobj 2614 0 obj <>>>/Rotate 0/StructParents 0/Tabs/S/Type/Page>> endobj 2615 0 obj <>stream 226 0 obj <> endobj Also, many of these small banks really do execute 1-for-1 between a Borrowers swap and the small banks hedge that is counterparty to a Swap Dealer. SOFR is a reference rate (benchmark rate) and an alternative to the US Dollar LIBOR rate. endstream endobj startxref This spread adjustment is currently 12 basis points for 1-month LIBOR and 26 basis points for 3-month LIBOR, reflecting the difference between SOFR as a secured rate and LIBOR as an . Term rates For right now, maybe it is best to not put all your eggs into one basket. Read more about Agency SOFR caps here. The recommended day count convention is similar to USD LIBOR (Actual/360), but it is possible to use other day count fractions (e.g., Actual/365). I know banks tend to prefer hedging their portfolio of Borrower-facing swaps with cleared swaps, but if BSBY swaps are not clearable, this may or may not impact the adoption of BSBY. Each CME Term SOFR Reference Rates tenor will start on (and include) the second US Government Securities Business Day Since exchange traded swaps really go hand-in-hand with clearing, the exchange trading of SOFR swaps could further benefit SOFR pricing. The hedge/loan accrues interest daily based on SOFR and the total amount due is known at the end of the period. Appendix 1. Term SOFR, the forward-looking term rate based on the Secured Overnight Financing Rate (SOFR), has become an established benchmark rate for new US Dollar lending in the US syndicated loan market. Both curves reflect future expectations of Federal Open Market Committee (FOMC) policy, but LIBOR is a forward-looking term rate while SOFR is an overnight rate. The Economic Inequality & Equitable Growth hub is a collection of research, analysis and convenings to help better understand economic inequality. Downloads. Alternatively, if the Borrower has no issues with managing the payment requirements of Daily Simple SOFR, then they may prefer this rate today. I just have not seen much in Ameribor. 1 There are four different types of SOFR indices, all with different administrators, licensing requirements and calculations: Daily Simple SOFR, Daily Compounded SOFR, CME Term SOFR (forward looking), and SOFR Averages (backward looking). The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors. Do you have a Freedom of Information request? In short: BSBY will not have mismatch risk. The ARR supports the use of SOFR Term Rate4 in addition to other forms of SOFR for business loan activity. 0 O#5 0.04 %. The 3-, 5- and 10-day lookback without observation shift versions give counterparties more notice by applying the SOFR rate from three, five and ten . In other words, its a rolling compounded average which is updated daily by the NY Fed after SOFR is published. Given how similar the terminology and rates are, it can be tricky to determine which index is being discussed, but at the end of the day they all shake out to be about the same. There are various SOFR rates/calculation methodologies which often leads to confusion. SOFR Index is based on the same calculation methodology as SOFR Average, so calculating the rate using the same start and end dates as SOFR Average should produce materially similar results. March 2, 2023 - The FT recently commented that, as LIBOR deadline looms, leveraged borrowers and lenders are scrapping over the fine print as the, The SECs proposed Safeguarding Rule includes sweeping and transformative revisions to the current Custody Rule. This variation is also a form of compounded SOFR in arrears and is the sum of (i) the Adjusted Reference Rate and (ii) the Spread Adjustment, each for the relevant LIBOR tenor. The following conventions relate to using SOFR in arrears (Daily Simple SOFR and SOFR Compounded in Arrears) for business loans. From an administrative standpoint, the main difference will be the reference to SOFR instead of USD LIBOR and the application of the Spread Adjustment to obtain a SOFR equivalent of an existing LIBOR margin. The ARRCs primary stated criteria in choosing a replacement rate for USD LIBOR included liquidity and robustness of underlying markets, as well as not restricting the Feds future monetary policy choices. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. Because both Daily Simple SOFR and this compounding approach apply the daily SOFR rate (the former to principal and the latter to the balance) they are mechanically similar. The NY Fed calculates and publishes SOFR each morning using the data from the preceding business day and its the basis for all other SOFR calculation methodologies. Term SOFR is eligible for use in general business loans (in contrast to the much narrower use cases for Term SONIA or any STR1 -based forward-looking term rate). (The entire conventions document is a mere five pages, so it is an easy read for those that want more detail.). $1 Trillion Daily < $500 Million Daily. The Economic Inequality & Equitable Growth hub is a collection of research, analysis and convenings to help better understand economic inequality. Banks have since started issuing debt and selling hedges based on Term SOFR. Think Prime or Fed Funds. I am not sure non-term rates will have much use in the loan market, today. Its effectively last months rate, so it lags Term SOFR in a rising rate environment. We do this by executing monetary policy, providing financial services, supervising banks and conducting research and providing expertise on issues that impact the nation and communities we serve. This ongoing Liberty Street Economics series analyzes disparities in economic and policy outcomes by race, gender, age, region, income, and other factors. Graph and download economic data for Secured Overnight Financing Rate (SOFR) from 2018-04-03 to 2023-03-02 about financing, overnight, securities, rate, and USA. Additional Term Loans means any term loan added pursuant to Section 2.22, 2.23 or 9.02 (c) (i). To calculate the interest rate, the ratio of two values (the period start and period end) are used to calculate compounded averages. Term SOFR is a proactive rate, meaning it moves in anticipation of a Fed hike. In fact, SOFR can be very closely modeled by the following simple regression $$$$ SOFR = {Survey\ Rate} + .38*(GCF - {Survey\ Rate} - .05) $$$$ Despite its simplicity, this regression has an R 2 of 99.8 percent (Figure 3). A bit complex (collecting SOFR daily and aggregating simple interest for each interest period, lookback period needed) All types of loans Any lender with a team that can provide the sum . This page shows graphs and a table with information about the development of the SOFR interest rates in 2022. Use of the Reference Rates are subject to important disclaimers, limitations and indemnification obligations. The SOFR Adjustment is intended to help with this, but the interest rate environment over the last 5 years (the time period the adjustment is based on) is unique if considering a longer window. USD markets started transitioning from LIBOR to SOFR in 2017 after the FCA announced that LIBOR was at risk of discontinuation at the end of 2021. For example, SOFR spiked at the end of 2018, but as you can see below the impact on 1-month compounded SOFR was minimal. There are approximately $900 billion of actual daily market transactions supporting the daily calculation of SOFR. Check out our white paper here for more on how the transition will change your rate. There are Treasury Affiliates, special securitization vehicles, cooperatives and other entities that are in the business of predominately engaging in financial activities, but think of themselves as end-users. Unfortunately, it isn't that simple. In other words, it can be used to calculate the compounded average of SOFR over a 28 or 31 day period, whereas SOFR Average would always be 30 days. The ARRC conventions recognize that either simple or compound interest can be charged when using SOFR in arrears. We do this by executing monetary policy, providing financial services, supervising banks and conducting research and providing expertise on issues that impact the nation and communities we serve. Alternatively, if we ever do see rates rise, then BSBY may be higher than an Adjusted SOFR agreed to during a low interest rate environment. If this is something Moore & Van Allen could assist with, please let me know. Alternatively, they can all be found on the CMEs website here. SOFR Rates For Dummies - A Helpful Overview in Layman's Terms, https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/users-guide-to-sofr2021-update.pdf, https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_SOFR_Synd_Loan_Conventions.pdf, https://www.newyorkfed.org/arrc/sofr-transition, https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/USD-LIBOR-transition-progress-report-mar-21.pdf. hb```&f AXXc #i `Qkp``# U(-8]q_CMq%2f)sHXkUCf *NKse|`Pb1aCD]+:9U^^*U&8R4{:i^u"=/JdO;bmbZUz]UzAyZM]w y7%s=sMbXW|#a};5:0g^gN3;{M,y:i&I&X/c]tc2wP'c^'M,z:iTu6M}%n6```pb`:Ph` , R^PL1*mM)WkRHIv4j$LDPvFXJ3;/0\al[$0)({IiLUF%Uw7BwW3H2pX@]vBT1: !p Here are all of the forms, instructions and other information related to regulatory and statistical reporting in one spot. Do you have a Freedom of Information request? A breakage cost can also occur if a borrower refuses to accept a loan that it had previously requested or does not prepay a loan on a date for which . %PDF-1.6 % With the different forms of SOFR rates in place i.e. Learn how to submit it. In derivatives market, SOFR compounded in arrears is often used. Simple interest may be computationally easier; compound interest is the more economically correct convention and will allow for more accurate hedging. The 1-month USD LIBOR forward curve represents market-implied future settings for 1-month USD LIBOR, an index rate used in many legacy floating-rate . Overnight rate, term not available. 2621 0 obj <>/Filter/FlateDecode/ID[<71CD6515EA1070449EA276D512E2A5FA>]/Index[2612 15]/Info 2611 0 R/Length 63/Prev 737784/Root 2613 0 R/Size 2627/Type/XRef/W[1 2 1]>>stream The New York Fed provides a wide range of payment services for financial institutions and the U.S. government. Each business day, the New York Fed publishes the SOFR on the New York Fed website at approximately 8:00 a.m. A forward looking term SOFR may be constructed based on SOFR derivatives markets once those markets have developed enough liquidity. The LSTA is a member of the ARRC, co-chairs the ARRCs BLWG and the BLWGs Operations Sub-Group. We have worked with clients to develop guidance on this topic, which is complicated given there are issues with such discussions under bank regulations and CFTC swap regulations. GBP LIBOR will transition to SONIA, likely by the end of 2021. Forward looking term SOFR rates are simply segments of an overnight SOFR-OIS curve that includes a fixed and floating leg. Note that specials are repos for specific-issue collateral, which take place at cash-lending rates below those for general collateral repos because cash providers are willing to accept a lesser return on their cash in order to obtain a particular security. endstream endobj startxref The Secured Overnight Financing Rate (SOFR) is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. This is the compounded average of SOFR from the previous 30, 90, or 180 days. CME Term SOFR Reference Rates are: Endorsed by the ARRC Designed to adhere to the IOSCO Principles for Financial Benchmarks Compliant with Benchmark Regulations Simple versus Compound Interest . 3 Background: The ARRCs Daily Simple SOFR and Daily Compounded SOFR in Arrears Conventions (published in July 2020) were complicated because these rates are not known in advance of the interest period and therefore many conventions differed from LIBOR conventions. The most actively traded USD LIBOR tenor is three months, and less than $1 billion of transactions typically support the calculation of this rate each business day. Periodic Term SOFR Determination Day has the meaning specified in the definition of "Term SOFR". One interesting fact we came across is that the difference between a simple and compounded average of SOFR over the previous two decades would have only ranged from 0-10 bps. Term SOFR > Daily Simple SOFR should be the case, since Term SOFR should more closely align with SOFR Compounded In-Arrears. 3 The CME Term SOFR Reference Rates benchmark is a daily set of forward-looking interest rate estimates, calculated and published for 1-month, 3-month, 6-month and 12-month tenors. In the Dealer-to-Dealer Market, SOFR may have greater liquidity and are clearable. The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry. Yes. However, it is still uncertain what liquidity will look like in the Dealer-to-Dealer Market, which impacts pricing. Given the loan market's preference for a forward-looking term rate, Coffey suggested that the choice for business loans may be Term SOFR or one of the newly launched credit sensitive rates featuring a forward-looking term structure, such as the Bloomberg Short Term Bank Yield Index (BSBY). Unlike LIBOR, SOFR is a secured overnight rate, not a forward looking term rate. The risk-free nature of SOFR brings challenges that have caused many banks to advocate for credit-sensitive benchmark rates developed in the private market. Term SOFR, USD LIBOR, and Treasury Forward Curves The Secured Overnight Financing Rate (SOFR) forward curve represents the implied forward rate based on SOFR futures contracts. Some of the factors that impact supply and demand in the Treasury repo market are: The market dynamics of the Treasury repo market make daily spot SOFR more volatile than spot USD LIBOR. Compounded SOFR could either be compounded, Because interest accrues over the interest period, parties using Simple Daily SOFR in Arrears or SOFR Compounded in Arrears will not know the final interest amount due until the end of the interest period. 0.05 %. The creation of a forward-looking term SOFR index based on derivatives markets was the final step in the ARRCs Paced Transition Plan. SOFR activity is spreading across the curve. the 'Daily Simple SOFR in Arrears', 'Daily Compounded SOFR in Arrears', 'SOFR Term Rates', and 'SOFR Averages (Applied in Advance)', ARRC has published its recommended conventions for both new loans that use SOFR, and for legacy loans that fall back from LIBOR to SOFR upon the cessation of LIBOR. The ARRC Business Loans Working Group (BLWG), which is co-chaired by the LSTA, developed these conventions. Honestly, all these talking points about BSBY apply similarly to any other CSR such as Ameribor, but at this point it seems like other CSRs are not picking-up, which also means it is more likely they will have a higher cost to hedge. This release coincided not coincidentally with the publication of Term SOFR Use Cases, which included business loans, related hedges and CLOs. Alternatively, if the Borrower has no issues with managing the payment requirements of Daily Simple SOFR, then they may prefer this rate today. SOFR is typically published on US business days, and CME Term SOFR aligns with that calendar. We help keep our clients up to date in these fast-moving areas and to serve as a thought leader. This means that the interest due is based on rates published during the interest period, but the payment would not be known until the end of the period. The NY Fed publishes SOFR Averages here and 30D SOFR can be found on Bloomberg under ticker . In past emails, I have talked about market shocks where SOFR drops below the cost of funding, but it should also be noted that SOFR is not so much a rate purely based on free market activities, but is one that the Fed can manipulate and has before (HERE). The FOMC has updated this "Fed Dot Plot" quarterly since January 2012. Daily Simple SOFR in Arrears, Daily Compounded SOFR in Arrears, forward looking Term SOFR and SOFR Averages (Applied in Advance). 4.30 %. $V" Y@8x"ZA3HBcio&FB A breakage cost occurs if the borrower prepays (1) for Daily Simple SOFR, on a day other than a payment date or (2) for Term SOFR, on a day that is earlier than the last day of the interest period. Term SOFR - the thought process ING Term Secured Overnight Financing Rate (SOFR) is the preferred reference rate on the transition of legacy loans product from Libor. Also, noted further below, maybe Dealers will not hedge a BSBY swap differently than a Term SOFR i.e., both Borrower swaps are priced based on the Fixed Rate in the Dealer-to-Dealer SOFR Market? On the flipside, the more an institution has exposure to swaps, the lower rate environment would increase the likelihood that the Borrower-facing swaps are in-the-money to the banks (but the banks portfolio hedges are out-of-the-money, so this may be a wash). This was one of the arguments against using Compounded SOFR reset in advance for loans. As an extension of the Secured Overnight Financing Rate (SOFR), the SOFR Averages are compounded averages of the SOFR over rolling 30-, 90-, and 180-calendar day periods. The Secured Overnight Financing Rate (SOFR) is a benchmark interest rate for dollar-denominated derivatives and loans that is replacing the London Interbank Offered Rate (LIBOR). Keeping Them ApartOne challenge with the transition from LIBOR to alternative rates has been that SOFR is used as a catchall that can mean one of several things. For example, term SOFR is a period-specific forward-looking term rate that is published for periods of 1, 3, 6 or 12 months. These features facilitate borrowers' cashflow and . On July 29, 2021, the ARRC formally recommended the CMEs forward-looking term SOFR rate for use, checking the last box of the Paced Transition Plan. The effect of averaging daily SOFR over a 1-month term significantly reduces the volatility.