During pandemic-driven market dislocations in March 2020, Real Estate Investment Trusts (REITs) were hit hard, with the S&P U.S. REIT Index falling 44% from its peak a month earlier. As the real estate market absorbed new realities of how people live and work, the REIT market was slower to bounce back than the broader market.
Necessity drove multiple REITs to hoard cash by shedding interest rate swap hedges and replacing them with lower-margin Treasury futures. These events shined a spotlight on REIT hedge efficiency that persisted even after the market’s return to relative normalcy, spurring analysts to pay increased attention to margin minimization as a differentiator for maximizing Earnings for Distribution.
Recent Happenings for Swap Futures Three recent events in the swap futures world caught our attention, prompting us to contemplate how much capital the top mortgage REITs could free up by replacing their interest rate swaps with Eris SOFR Swap futures (Eris SOFR).
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Eric Leininger
Eric Leininger is Executive Director of Financial Research and Product Development at CME Group. He is based in New York.
Michael Riddle
is the CEO of Eris Innovations, the intellectual property licensing company that created Eris SOFR Swap futures, which are listed at CME Group. A 20-year veteran of the Chicago futures industry, he previously worked for the Chicago Board of Trade and CME Group. Since Eris SOFR’s recent volume and open interest growth started in 2023, he spends most of his time writing and talking about the product’s benefits for mortgage companies, REIT’s, regional banks and credit unions.
