Trader Doubles Money on Big 6% Fed Rate Bet as Unwind Begins
What Is the Secured Overnight Financing Rate (SOFR)?
The Secured Overnight Financing Rate (SOFR) is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities and is established by the Federal Reserve Bank of New York. It is an influential interest rate that banks use to price U.S. dollar-denominated derivatives and loans.
What is the Secured Overnight Financing Rate (SOFR) Futures Contract?
SOFR futures contracts are contracts reflecting market expectations of future SOFR values over the next 13 calendar months and are established by CME Group.
The price of SOFR futures is calculated as 100- expected SOFR at the specific date of the contract.
For instance, the current price of $One-Month SOFR JUN3 (SR12306.US)$ (94.755) implies an expected interest rate of (100-94.755=5.245)% for June.
The current price of $One-Month SOFR DEC3 (SR12312.US)$ contract (94.585) implies an expected interest rate of (100-94.585=5.415)% for December.
Source: CME Group, Investopedia
Disclaimer: The content should not be relied on as advice or recommendation.
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