“The transition from SOR (three-month forward) to Sora (three-month lag) benchmark rates further explains the muted influence of higher rates in 2Q2022 results,” JP Morgan suggests. Its premise appears to be that Sora is backward looking, and has been lower, and slower to react to the Fed’s rate hike cycle than SOR, which is forward-looking. Industry experts say this should not make a difference to customer loan costs.
There are different views on this, but on the whole the move to Sora is meant to be neutral with reference to SOR. On the other hand, it appears that S-REITs, corporates and any entity or consumer with a loan are likely to face higher funding costs. That impact has not yet been fully felt because the surge in rates took place in June and July.
The US Federal Reserve raised the US Federal Funds Rate by 25 bps in March, 50 bps in May, 75 bps in June and 75 bps in July. In an update on Aug 30, JP Morgan has reiterated its view that the full impact of the Fed’s rate hike cycle has yet to be fully felt by the S-REITs, in particular for those with relatively higher floating rate debt.
