Term SOFR is calculated by CME Group Benchmark Administration, which collects transaction prices and volumes from one-month and three-month SOFR futures traded across a seven-hour window each business day, runs those inputs through a tiered priority system that favors actual executed trades, and interpolates the results into forward-looking 1-month, 3-month, 6-month, and 12-month rates published the following morning.1CME Group. CME Term SOFR Reference Rates Benchmark Methodology The output tells borrowers and lenders what overnight SOFR is expected to average over a given future period, with the rate locked in at the start of that period rather than compounded in arrears.
The Underlying Market Data
CME Group Benchmark Administration, Ltd. is the designated administrator for Term SOFR, a role recognized in federal regulation.2eCFR. 12 CFR 253.2 – Definitions The raw inputs come from two families of SOFR futures contracts traded on CME’s electronic platform: one-month contracts under the ticker SR1 and three-month contracts under SR3. Each contract is a binding financial commitment tied to the expected average overnight SOFR rate over a specific future period, so the prices embed real money-at-risk views on where rates are headed.
The administrator pulls transaction prices and trade volumes from these futures throughout the trading day. Because the contracts are regulated under the Commodity Exchange Act, the data carries federal oversight and market-integrity protections that would not apply to a voluntary dealer survey.3eCFR. Part 1 General Regulations Under the Commodity Exchange Act Hundreds of billions of dollars in notional value trade across these contracts, which is what makes the resulting benchmark reflect a broad market consensus rather than a thin set of quotes.
The Priority Hierarchy for Inputs
Not every slice of the trading day sees heavy transaction volume, so the methodology uses a structured priority system to decide which data feeds the final rate. The top priority is a volume-weighted average price calculated from actual executed trades in SOFR futures during each observation interval.4CME Group. CME Term SOFR Reference Rates – Frequently Asked Questions When real trades are plentiful, each transaction price is weighted by the number of contracts changing hands, producing a clean picture of where the market settled.
When trading thins out during a particular interval, the methodology falls back to lower tiers. The guiding principle is that observable market activity always outranks estimated or modeled values, consistent with the IOSCO Principles for Financial Benchmarks, which require administrators to anchor rates in verifiable transactions wherever possible and document the conditions under which they shift to alternative inputs. This layered design keeps the benchmark publishing through holidays, low-volume sessions, and sudden market dislocations.
The structure also limits manipulation risk. Moving Term SOFR would require pushing actual futures prices across multiple observation intervals throughout a seven-hour window, not spiking a single quote. That is expensive and conspicuous in a market this deep.
Observation Window and Publication Timing
The administrator monitors SOFR futures trading from 7:00 AM to 2:00 PM Central Time each business day, splitting that window into fourteen 30-minute observation intervals.1CME Group. CME Term SOFR Reference Rates Benchmark Methodology Spreading data collection across seven hours rather than a narrow fixing window makes the rate far more resistant to momentary price moves. By the time the observation period closes at 2:00 PM Central, the rate has absorbed the market’s reaction to that morning’s economic releases, Federal Reserve communications, and Treasury auction results.
Final rates are published the following business day at 5:00 AM Central Time, or 6:00 AM Eastern.4CME Group. CME Term SOFR Reference Rates – Frequently Asked Questions For loan operations the timing matters: rates published on day T are based on futures data sampled on day T-1, and the reference period for the rate begins on T+2. That two-business-day settlement lag mirrors standard money-market conventions and gives banks enough lead time to update systems and notify borrowers before an interest period starts.
Holidays and Non-Publication Days
When the New York Fed or CME is closed for a federal holiday, no new Term SOFR rate is published. On those days, loan agreements generally rely on the rate published on the most recent preceding business day.5New York Fed. Forward Looking Term SOFR and SOFR Averages Conventions for Syndicated and Bilateral Business Loans Most credit agreements include explicit non-business day language, but confirm how your specific deal documents handle the gap so there is no confusion about which rate applies on the first business day back.
From Futures Prices to Standard Tenors
SOFR futures contracts expire on specific calendar dates that rarely land exactly one or three months from any given day. To produce clean 1-month, 3-month, 6-month, and 12-month rates that match standard loan terms, the administrator builds a projection curve from the overlapping futures prices and interpolates between them.1CME Group. CME Term SOFR Reference Rates Benchmark Methodology The result is a smooth forward rate path that yields a rate for any standard tenor.
The published rates represent what the market expects compounded overnight SOFR to average over each tenor period.4CME Group. CME Term SOFR Reference Rates – Frequently Asked Questions If 3-month Term SOFR is quoted at 4.30%, the market collectively expects overnight SOFR to compound to roughly that annualized rate over the next three months. Contracts that do not align perfectly with a standard tenor can use the closest published rate or interpolate between the two nearest rates.5New York Fed. Forward Looking Term SOFR and SOFR Averages Conventions for Syndicated and Bilateral Business Loans
This forward-looking construction is the key difference from the overnight SOFR benchmark. Overnight SOFR and its compounded averages are backward-looking: the final interest amount is not known until the period ends. Term SOFR locks in a rate at the start of the period, which is why it became the common benchmark for commercial loans after LIBOR’s retirement.
Day Count Conventions
Interest on Term SOFR loans is typically calculated using an Actual/360 day count, the standard convention in U.S. money markets.5New York Fed. Forward Looking Term SOFR and SOFR Averages Conventions for Syndicated and Bilateral Business Loans You divide the annual rate by 360 and multiply by the actual number of calendar days in the interest period. Because a year has 365 or 366 days, Actual/360 produces slightly more interest than Actual/365 for the same quoted rate. Some agreements specify Actual/365 instead, so check which convention your loan documents use before reconciling an interest invoice.