SOFR is calculated once each business day by the Federal Reserve Bank of New York as the volume-weighted median interest rate across roughly $3 trillion in overnight loans secured by U.S. Treasury securities.1Federal Reserve Bank of New York. Secured Overnight Financing Rate Data In plain terms, the New York Fed collects every qualifying trade from the Treasury repurchase agreement (repo) market, lines them up from the cheapest to the most expensive, and picks the rate sitting at the dollar-weighted middle of the day’s activity. There is no survey, no estimate, and no bank judgment involved. The number comes straight from what actually traded.
What Trades Go Into the Calculation
A repo is a short-term loan in which one party hands over Treasury securities and receives cash, agreeing to buy the securities back the next business day at a slightly higher price. That price difference is the interest on the loan. Because the collateral is U.S. government debt, these trades carry minimal credit risk and track the baseline cost of overnight funding in American markets.
SOFR draws on three segments of this market:1Federal Reserve Bank of New York. Secured Overnight Financing Rate Data
- Tri-party repo trades, in which the Bank of New York Mellon acts as a go-between, holding the collateral and settling the trade for both sides. Large institutional lenders typically fund dealers through this channel.
- GCF (General Collateral Finance) repo trades cleared through the Fixed Income Clearing Corporation. These are interdealer transactions where any Treasury meeting general quality standards can serve as collateral.
- Bilateral DVP (delivery-versus-payment) repo trades, also cleared through the FICC, in which specific Treasury securities move directly between two parties. This segment reaches a broader pool of activity beyond the interdealer market.
Pulling all three segments into one calculation is what gives SOFR its depth. On a typical recent day the combined volume exceeded $3 trillion, which makes the rate one of the most heavily anchored benchmarks in global finance.1Federal Reserve Bank of New York. Secured Overnight Financing Rate Data The underlying transaction data comes from the U.S. Treasury’s Office of Financial Research and from the Bank of New York Mellon’s tri-party platform.2Federal Reserve Bank of New York. An Updated Users Guide to SOFR
Removing “Specials”
Not every repo trade reflects the general cost of borrowing cash overnight. Sometimes a lender is willing to accept a lower return because what it really wants is temporary possession of a specific Treasury security. Those trades are called “specials,” and the rates on them can run artificially low because the lender is chasing collateral, not yield.3Federal Reserve Bank of New York. Statement Regarding Modifications to the Secured Overnight Financing Rate
To keep specials from pulling the published rate below the true cost of general overnight funding, the New York Fed trims the bottom 20 percent of transaction volume from the bilateral DVP segment before running the calculation. The tri-party and GCF segments already involve general collateral pools and are less exposed to this problem, so no equivalent trim is applied to them.3Federal Reserve Bank of New York. Statement Regarding Modifications to the Secured Overnight Financing Rate
The Volume-Weighted Median, Step by Step
Once the filtered data is in hand, the New York Fed runs a volume-weighted median. The phrase sounds technical, but the mechanic is straightforward: instead of averaging every rate, the Fed finds the single rate sitting at the exact midpoint of all the money that changed hands.
The process has three steps.1Federal Reserve Bank of New York. Secured Overnight Financing Rate Data First, every qualifying trade is lined up from the lowest interest rate to the highest. Each trade carries two numbers: the rate it was executed at, and the dollar volume behind it. Second, the Fed adds those dollar volumes cumulatively, starting from the lowest-rate trades and working upward. Third, the rate at which the running total crosses 50 percent of the day’s total volume becomes the published SOFR.
A quick worked example. Suppose total volume for the day is $1.2 trillion. The Fed stacks the trades from lowest rate to highest and keeps a running sum of their dollar amounts. The moment that running sum hits $600 billion, the interest rate attached to that trade is the published SOFR. Small trades at extreme rates barely move the running total, so they have almost no influence on the final number.
Why a Median Instead of an Average
An average would treat a $50 million trade at 6 percent as if it carried the same weight as a $50 billion trade at 4.3 percent, and a few oddball prints could pull the result off its true center. The median does not care about extremes at the tails, because the midpoint is determined by where the bulk of dollars actually sit. For a benchmark that drives trillions of dollars of consumer and commercial debt, that resistance to noise and to manipulation is the point.
Alongside the headline rate, the New York Fed publishes the 1st, 25th, 75th, and 99th percentile rates from the same distribution.1Federal Reserve Bank of New York. Secured Overnight Financing Rate Data A tight band between the 25th and 75th percentile tells you the market was in broad agreement that day; a wider band hints at fragmentation, often around quarter-end balance-sheet pressures.
When the Rate Is Published and When It Changes
SOFR is published every business day at approximately 8:00 a.m. Eastern Time on the New York Fed’s website, and the rate reflects the prior business day’s trading. A rate posted Tuesday morning covers Monday’s repo market.1Federal Reserve Bank of New York. Secured Overnight Financing Rate Data No new rate is produced on days when the U.S. bond market is closed.
If errors in the underlying data or late-arriving trades change the recalculated rate by more than one basis point (0.01 percentage points), the New York Fed publishes a revised rate at approximately 2:30 p.m. Eastern Time the same day.4Federal Reserve Bank of New York. Statement Requesting Public Comment on a Proposed Publication of SOFR Averages and a SOFR Index Revisions happen only on the same day as the initial publication. Prior days are not reopened. In the rare case where the available data is insufficient to produce a rate at all, the prior business day’s SOFR is republished with a notation explaining the substitution.1Federal Reserve Bank of New York. Secured Overnight Financing Rate Data
The Backup Method
If the standard data feeds fail entirely, the New York Fed can fall back on a detailed daily survey of primary dealers’ repo borrowing activity. That contingency has been used once, on May 31, 2019, and produced a rate without incident.2Federal Reserve Bank of New York. An Updated Users Guide to SOFR
A Note on Term SOFR and SOFR Averages
Everything above describes overnight SOFR, which is the base rate. Two related rates built on top of it are calculated differently and come from different sources, so it is worth knowing which one your contract actually references.
The New York Fed publishes compounded SOFR Averages over rolling 30-, 90-, and 180-calendar-day windows, along with a SOFR Index that lets users derive the compounded rate over any custom period.5Federal Reserve Bank of New York. SOFR Averages and Index Data These are backward-looking: today’s 30-day average reflects the compounded overnight rates from the past 30 calendar days.
CME Group, not the New York Fed, publishes forward-looking Term SOFR rates in 1-month, 3-month, 6-month, and 12-month tenors. The methodology relies on transaction prices and executable bids and offers in CME’s 1-month and 3-month SOFR futures contracts, calculated as a volume-weighted average within a daily observation window.6CME Group. CME Term SOFR Reference Rates Benchmark Methodology Term SOFR tells a borrower at the start of an interest period what rate will apply for that period, which is how LIBOR used to work and why Term SOFR is common in business loans.