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Interpreting a SOFR OIS Par Rate Alongside Current SOFR

Article Quant Q&A · Author: Rohit Gajare
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Summary

The document raises a question about how to interpret a one-year rate shown on a daily SOFR overnight indexed swap curve. The author asks whether the displayed rate represents the swap rate for the coming twelve months and expresses surprise that it is below the latest observed SOFR rate. This frames a useful distinction to investigate: a quoted swap rate is a market rate for cash flows over a term, while a latest overnight fixing is a rate observed for a particular date.

The text does not answer the question or explain how the curve is constructed. It identifies a specific curve date and compares its one-year quote with a contemporaneous SOFR observation, but offers no calculation, curve conventions, or evidence resolving the apparent discrepancy. Readers should treat it as a request for interpretation rather than a complete explanation of OIS pricing or rate expectations.

Key ideas

  • The author asks what a one-year rate on a SOFR OIS curve represents.
  • The question contrasts a term swap quote with a latest observed overnight SOFR rate.
  • The document supplies a dated example but no explanation of the curve’s construction.
  • No conclusion about expected future SOFR or OIS pricing is provided.

Tags

Fixed incomeDerivatives pricingUS markets
Full text
# Interpreting SOFR OIS Curve from CME


# Interpreting SOFR OIS Curve from CME












I have a doubt regarding the daily SOFR OIS Curve published by CME.

https://www.cmegroup.com/trading/interest-rates/cleared-otc-sofr-swaps.html#sofroiscurve

If we refer to the curve dated 22 Jul 2022...

The one year OIS rate is displayed at 0.3074%, this means that the OIS SWAP Rate for next 12 months is 0.3074%, right ? However, the latest SOFR Rate is ~ 1.50% - 1.53%. I was expecting the SWAP rate to be higher.

Would appreciate your opinions.

Regards, Rohit

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