Overnight and Term Reference Rates: Swap Availability and Liquidity
Article Quant Q&A · Author: Cyclopropane
Summary
The discussion surveys interest rate benchmarks and swaps after the transition away from LIBOR. It distinguishes overnight risk-free rates from unsecured overnight rates and forward-looking term rates, naming examples across currencies. For USD, it describes term SOFR swaps as available for loan hedging but relatively illiquid, with policy guidance favoring liquidity in overnight SOFR. It also notes that some overnight indices may support cleared swaps, while less-used credit-sensitive benchmarks can make counterparties and clearing harder to find.
The text gives market conventions as described in its answers, including fixed-leg frequencies and floating legs that commonly compound overnight rates in arrears. It mentions that term versions of some benchmarks exist and that term SOFR use is limited. These observations are market-specific and time-sensitive; the document provides no quantitative liquidity measures, and OTC availability depends on counterparties and clearing arrangements.
Key ideas
- Overnight risk-free benchmarks and unsecured overnight benchmarks have different characteristics and market roles.
- Term SOFR swaps exist, but the discussion describes their use and interbank liquidity as limited.
- Swap availability, clearing, and counterparty access vary by benchmark and currency.
- Many reference-rate swaps compound overnight rates in arrears, while some term-rate swaps reset in advance.
- The market conventions and liquidity observations are time-sensitive and are not supported by quantitative measures in the document.
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Full text
# Market existence and derivative support for risky ON rates and risk-free term rates # Market existence and derivative support for risky ON rates and risk-free term rates Post-LIBOR transition, most new reference rates (SOFR, SONIA, etc.) are structured as overnight risk-free rates, while legacy benchmarks like Euribor remain term-based and credit-sensitive. - Does the market currently support benchmarks that flip these characteristics—specifically, unsecured overnight indices or forward-looking risk-free term rates? - If so, what is the liquidity of IRS (e.g. OIS or Fixed-for-Floating) that reference these specific rate structures? ## Answer by dm63 (score 3) https://quant.stackexchange.com/a/85433 In the US, it is possible to to trade IRS based on “term SOFR”, in tenors of 1M, 3M, 6M and 12M. These benchmarks are set daily by the CME based on observations of SOFR futures prices within a specific time window. This market is not liquid- in fact the Federal Reserve has stated it expects dealers NOT to make an interbank market in term SOFR swaps. The rationale is that the regulators want the liquidity to be concentrated in overnight SOFR, which is an index that is very difficult to manipulate. ## Answer by Dimitri Vulis (score 1) https://quant.stackexchange.com/a/85435 To add some details to @dm63's answer, for USD, SOFR is popular. "S" in SOFR stands for "Secured". Some popular unsecured / uncollateralized overnight alternatives are Effective Federal Funds Rate (EFFR), which is not affected by repo spikes like SOFR; and the broader Overnight Bank Funding Rate (OBFR) . (See https://www.newyorkfed.org/markets/reference-rates/additional-information-about-reference-rates for methodology) . Some less liquid credit-sensitive rate alternatives are ICE Ameribor https://ir.theice.com/press/news-details/2025/ICE-Transitions-AMERIBOR-to-ICE-Data-Indices/default.aspx , sometimes used by some community and regional banks, and Bloomberg Short-Term Bank Yield Index (BSBY), which is dead. https://assets.bbhub.io/professional/sites/27/Bloomberg-BSBY-Cessation-Reminder.pdf "Term SOFR" is tradable, but regulators want to limit its use, so it doesn't become a tail wagging the dog. Read https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2023/ARRC-Term-SOFR-Scope-of-Use-Best-Practice-Recommendations.pdf In other currencies, no one else uses a "secured" index like SOFR. Unsecured overnight indices exist for many currencies, such as EUR €STR, GBP SONIA, JPY TONA, CHF SARON, SGD SORA, etc. Term €STR and term SONIA also exist. Edit: As long as you find a counterparty, you can put all sorts of terms and conditions over the counter interest rate swaps. You should be able to trade a USD IR swap whose float leg resets, e.g. from EFFR, rather than SOFR, and it should be still clearable on central clearing parties (CCPs) like LCH (London Clearing House) and CME (Chicago Mercantile Exchange). You should also be able to trade even an IR swap resetting from ICE Ameribor, but it would not be clearable, and finding a counterparty would be harder. For reference, I will mention the most common conventions as of 2026, post LIBOR transition. USD: annual fixed, day count is usually 30/360 versus annual float reset in arrears from daily compounded SOFR Actual/360. Term SOFR swaps, reset in advance, are mostly limited to hedging end-user loans reset in this way. Any other use may cause issues. EUR: even before the LIBOR transition, most people used EURIBOR, rather than (abolished) EUR LIBOR, and that doesn't seem to have changed yet. It is possible to do annual annual fixed 30/360 versus annual float reset in arrears from daily compounded €STR Actual/360. Term €STR also exists. However quarterly or semi-annual float reset in advance from "Term" 3-month or 6-month EURIBOR Actual/360 still common. GBP: annual fixed Actual/365F versus annual (sometimes quarterly) float reset in arrears from daily compounded SONIA Actual/365F. Term SONIA also exists. JPY: annual (sometimes semiannual) fixed Actual/365F versus annual float reset in arrears from daily compounded TONA Actual/365F. and similar for CHF, SGD, and other currencies. Observe that RFR swaps generally reset in arrears with lookback/lockout periods.
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