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Medium · Algorithms & Data Structures · Quant Trader interview question · OIS, SOFR, Credit Risk, Interest Rates, Derivatives
The Overnight Index Swap (OIS) rate is a fixed rate for the expected average of overnight rates over a specified term, discounted back to today. SOFR (Secured Overnight Financing Rate) is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. Consider a scenario where the OIS-SOFR spread widens significantly. What is the most likely interpretation of this widening spread?