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CME Term SOFR Rates Are Implied by SOFR Futures

Article Quant Q&A · Author: Bogaso
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Summary

The exchange clarifies that CME’s term SOFR figures are not simply another observation of the overnight rate. They are forward-looking term rates implied by trading in SOFR futures. This explains why the benchmark page can show rates for horizons such as six months even though SOFR itself is an overnight reference rate.

The answer points to CME’s methodology section on calculating term rates from SOFR futures, but does not reproduce the calculation or explain how a quoted percentage should be converted into practical borrowing costs. Users should consult the benchmark methodology for details about construction and interpretation. The source gives a concise conceptual identification, rather than independent evidence or a worked example.

Key ideas

  • Term SOFR represents a rate for a future term, rather than a single overnight fixing.
  • CME derives its term rates from SOFR futures trading.
  • The benchmark methodology provides the construction details absent from the short answer.
  • A quoted term rate should be interpreted according to the benchmark’s calculation conventions.

Tags

Fixed incomeFutures
Full text
# Overnight Term rate


# Overnight Term rate












I have come across this page from `CME` which provides O/N rate for various terms:

https://www.cmegroup.com/market-data/cme-group-benchmark-administration/term-sofr.html

I am confused on this specification. What does 6m `SOFR` as 0.05144 mean? `SOFR` is essentially overnight rate, so for a given day (closing) I would expect only single quote.

Is there any calculation happening to derive this so called 6M rate for `SOFR`? What does the rate 0.05144 mean in practical sense?

Any insight is highly appreciated.

## Answer by user42108 (score 1)

https://quant.stackexchange.com/a/66597

These are term rates as implied by SOFR futures trading on CME. See https://www.cmegroup.com/market-data/files/cme-term-sofr-reference-rates-benchmark-methodology.pdf, section 4, "Calculating Term Rates from SOFR Futures".

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.