Strips Finance


Calculation Methodology for SOFR*
The Secured Overnight Financing Rate (SOFR) is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. The SOFR includes all trades in the Broad General Collateral Rate plus bilateral Treasury repurchase agreement (repo) transactions cleared through the Delivery-versus-Payment (DVP) service offered by the Fixed Income Clearing Corporation (FICC), which is filtered to remove a portion of transactions considered “specials”. Note that specials are repos for specific-issue collateral, which take place at cash-lending rates below those for general collateral repos because cash providers are willing to accept a lesser return on their cash in order to obtain a particular security.
The SOFR is calculated as a volume-weighted median of transaction-level tri-party repo data collected from the Bank of New York Mellon as well as GCF Repo transaction data and data on bilateral Treasury repo transactions cleared through FICC's DVP service, which are obtained from the U.S. Department of the Treasury’s Office of Financial Research (OFR). Each business day, the New York Fed publishes the SOFR on the New York Fed website at approximately 8:00 a.m. ET.
The Secured Overnight Financing Rate (SOFR) is calculated as a volume-weighted median, which is the rate associated with transactions at the 50th percentile of transaction volume reported by . Specifically, the volume-weighted median rate is calculated by ordering the transactions from lowest to highest rate, taking the cumulative sum of volumes of these transactions, and identifying the rate associated with the trades at the 50th percentile of dollar volume. At publication, the volume-weighted median is rounded to the nearest basis point.
Also published alongside the volume-weighted median rate are the 1st, 25th, 75th, and 99th volume-weighted percentile rates and the transaction volume underlying the rate. The volume-weighted percentiles are calculated using the same volume-weighted methodology described above. Transaction volume is calculated as the sum of overnight transaction volume used to calculate each reference rate, rounded to the nearest $1 billion. These additional summary statistics reflect the inputs included in the rate calculation and will only be revised on the day of initial publication if amendments to the data result in a same-day revision to any of the three rates.
For each rate, the New York Fed excludes trades between affiliated entities, when relevant and when the data to make such exclusions are available. Similarly, the New York Fed excludes trades negotiated for forward settlement. To the extent possible, “open” trades, for which pricing resets daily (making such transactions economically similar to overnight transactions), are included in the calculation of the rates. As noted above, DVP repo transactions with rates below the 25th volume-weighted percentile rate are removed from the distribution of DVP repo data each day.
For further information regarding the development of the three Treasury repo reference rates, please see the following:
*Reference from New York Federal Reserve
Last modified 9mo ago