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Overnight Indexed Swaps Can Reference Fed Funds or SOFR

Article Quant Q&A · Author: Student
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Summary

An overnight indexed swap is a swap structure whose floating payments are tied to an overnight interest rate. The benchmark is not inherent in the OIS label: depending on the contract, it may reference the federal funds rate, SOFR, or another overnight rate. The discussion notes that OIS was commonly understood to mean federal funds in earlier market usage, while SOFR-based OIS-style swaps are also encountered.

The answers disagree, with one claiming that OIS always means federal funds. The more qualified explanation distinguishes the swap convention from its chosen reference rate and makes clear why the contract specification matters. This brief exchange provides terminology guidance, not details on payment conventions, valuation, or how to identify the benchmark in a particular instrument. Traders and researchers should therefore read the instrument’s terms rather than infer its floating index from the OIS name alone.

Key ideas

  • OIS describes a swap structure based on overnight rates, rather than a unique benchmark.
  • An OIS may reference federal funds, SOFR, or another overnight rate.
  • Market usage historically often associated the OIS label with federal funds.
  • The exchange contains conflicting claims, so the instrument terms are needed to establish its reference rate.

Tags

Fixed incomeUS markets
Full text
# US overnight swaps (OIS)


# US overnight swaps (OIS)












Can you please confirm if the underlying rate of US overnight indexed swaps is SOFR or Fed funds?

## Answer by dm63 (score 6)

https://quant.stackexchange.com/a/60938

Well, OIS is actually a style of swap, based on overnight rates. It could have a Fed Funds or a SOFR underlying rate, or anything else. Up until recently , it was assumed in common parlance that OIS meant Fed Funds, but we do hear nowadays of OIS style SOFR swaps.

## Answer by JoshK (score -1)

https://quant.stackexchange.com/a/60917

OIS always refers to Fed Funds.

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