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Short-Term SOFR Curve Stripping with One- and Three-Month Futures

Article Quant Q&A · Author: stackoverflower
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Summary

The document asks which market instruments can help construct the short end of the SOFR curve, given the questioner’s impression that swaps are unavailable below a one-year maturity. The response points to trading in one-month and three-month SOFR futures. Their quoted prices can help connect liquid futures maturities with liquid swaps at intermediate maturities when stripping the curve.

This identifies a practical instrument set for bridging the short end into the swap curve. The exchange does not provide a detailed bootstrapping procedure, contract conventions, market data, or a comparison of liquidity across instruments. Its guidance is limited to the cited futures and assumes their quotes are suitable for the intended curve construction; practitioners would need to account for the relevant futures and swap conventions in implementation.

Key ideas

  • One-month and three-month SOFR futures are identified as active short-term instruments.
  • Futures quotes can help bridge short maturities to liquid mid-term swap quotes.
  • The purpose is to strip an appropriate SOFR curve across the short end.
  • The response gives no detailed curve-building method or discussion of contract conventions.

Tags

FuturesFixed incomeDerivatives pricing
Full text
# which market instruments are used to strip the SOFR curve under 1 year?


# which market instruments are used to strip the SOFR curve under 1 year?












which instruments are used to strip the SOFR curve for the short term of the curve(below 1 y) ? there are no swaps with maturity under 1 year, right?

thanks

## Answer by Thomasunny (score 1)

https://quant.stackexchange.com/a/68111

The trading is being more and more active on 1-month and 3-month SOFR Futures. These quotes should help bridging with liquid swap quotes on mid-term maturities and stripping the appropriate curve.

https://www.cmegroup.com/trading/interest-rates/secured-overnight-financing-rate-futures.html

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.