Options on SOFR futures are derivative contracts that give the holder the right, but not the obligation, to buy or sell SOFR futures expiring on (or before) a specific date for a specific price, called the strike price. The rate associated with a futures contract-the three-month compounded average SOFR-is based on the market's expectation of the cost of Treasury repo financing each day throughout the contract’s indicated reference quarter. SOFR futures are derivative contracts that deliver the equivalent overnight repo-based financing across specific future quarterly windows. What are SOFR futures and options on SOFR futures? For more complete information about SOFR’s administration, along with detail about the transactions included in the calculation, please visit the New York Fed's website. The Federal Reserve Bank of New York calculates SOFR each day using transaction-level data from the Bank of New York Mellon on overnight, specific-counterparty tri-party general collateral repo transactions secured by Treasury securities, along with GCF Repo transaction data obtained from the US Department of Treasury's Office of Financial Research. It represents the broad cost of overnight (one-day) loans, called overnight repurchase agreements, or simply 'repo,' that are collateralized with US Treasury securities. The Secured Overnight Financing Rate, or SOFR, is the Alternative Reference Rates Committee's replacement for the US dollar London Interbank Offer Rate, or USD LIBOR, as the market's key benchmark rate on US dollar-denominated securities. What is the Secured Overnight Financing Rate (SOFR)? Stay informed of all Market Probability Tracker updates by signing up for email notifications, subscribing to our RSS feed, downloading our EconomyNow app, or following the Atlanta Fed on Twitter. For a more detailed look at the model, please refer to this paper and technical note on its implementation. In this tracker we provide the path the market expects the three-month average fed funds rate to take, along with the 25th to 75th percentile region the probability of a 25 basis point rate hike or cut for the three-month interval starting on the contract's expiration date and how likely market participants are assessing various future outcomes, distributed across a wide range of possible rates.Īn overview of our approach can be found in our Notes from the Vault. To illustrate changes in the market's assessment of the average fed funds rate over future three-month intervals, users can view and compare estimates from the prior six weeks for individual contracts. Our methodology uses data on three-month Eurodollar futures, options on three-month Eurodollar futures from the Chicago Mercantile Exchange (CME), three-month LIBOR/fed funds basis swap spreads expiring in 12 months, and the Treasury yield curve.Įstimates from the four-nearest quarterly expiring contracts are updated daily using the previous day's closing prices. This tool estimates the market-implied probabilities of various ranges for the three-month average fed funds rate.

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