SOFRterm

SOFRterm refers to term rates derived from the Secured Overnight Financing Rate (SOFR). SOFR is a benchmark interest rate that represents the cost of borrowing cash overnight collateralized by U.S. Treasury securities. While SOFR itself is an overnight rate, market participants often require term rates for periods longer than overnight, such as 30, 60, or 90 days, for loan and derivative contracts.

SOFRterm aims to provide these forward-looking term rates. These rates are calculated using a standardized methodology that incorporates observable SOFR futures prices. The idea is to create a robust and reliable term rate that reflects market expectations for SOFR over different future periods. This differs from simply compounding the daily SOFR over a given tenor, which would be a backward-looking rate.

The development and adoption of SOFRterm are part of a broader industry transition away from LIBOR (London Interbank Offered Rate), which is being phased out. Term rates are crucial for certain financial products, including syndicated loans, some securitizations, and certain over-the-counter derivatives, where a fixed rate for a specific future period is necessary. Various providers and industry bodies are involved in the calculation and dissemination of SOFRterm rates.