Center for Financial Innovation and Stability

Market Probability Tracker

The Market Probability Tracker estimates probability distributions implied by the prices of options from the Chicago Mercantile Exchange that reference the three-month compounded average Secured Overnight Financing Rate (SOFR). SOFR, published by the Federal Reserve Bank of New York , broadly measures the cost of overnight (one-day) loans collateralized with Treasury securities in the repurchase agreement, or repo, market. Because the New York Fed's Open Market Trading Desk implements monetary policy through repo market transactions, we can use the estimated distributions to make inferences about the market's assessment of future target ranges that the Federal Open Market Committee sets.

Updates are made daily using the most recently available data, typically from the previous day. In this tracker, we show results from the four nearest-expiring quarterly contracts. To observe changes in the market's assessment, users can view and compare estimates across the prior six weeks for the market's expected three-month average SOFR path and its 25th- to 75th-percentile region; the probabilities associated with future target ranges over the quarterly intervals specified by individual contracts; and the full distribution estimated by our model.

Note that CME Group market data are used—with permission from CME—as a source of information for this report. CME Group has no other connection to the Federal Reserve Bank of Atlanta's products and services and does not sponsor, endorse, recommend, or promote the report, its contents, or the authors or any of their respective products or services. CME Group has no obligation or liability in connection with the report, its contents, or the authors or any of their respective products or services. CME group does not guarantee the accuracy and/or the completeness of any market data in connection with the report, its contents, or the authors or any of their respective products or services and shall not have any liability for any errors, omissions, or interruptions therein. There are no third-party beneficiaries of any agreements or arrangements between CME Group and the authors.

An overview of our approach can be found in our Notes from the Vault. For a more detailed look at the model, please refer to this paper and technical note on its implementation.

Stay informed of all Market Probability Tracker updates by signing up for email notifications, subscribing to our RSS feed , downloading our EconomyNow app, or following the Atlanta Fed on Twitter.

Use the options below to change the observation date(s) and contract you'd like to view.

Date 1:

Date 2:

Three months starting:

What is the Secured Overnight Financing Rate (SOFR)?

The Secured Overnight Financing Rate, or SOFR, is the Alternative Reference Rates Committee's replacement for the US dollar London Interbank Offer Rate, or USD LIBOR, as the market's key benchmark rate on US dollar-denominated securities. It represents the broad cost of overnight (one-day) loans, called overnight repurchase agreements, or simply "repo," that are collateralized with US Treasury securities.

How is SOFR calculated?

The Federal Reserve Bank of New York calculates SOFR each day using transaction-level data from the Bank of New York Mellon on overnight, specific-counterparty tri-party general collateral repo transactions secured by Treasury securities, along with GCF Repo transaction data obtained from the US Department of Treasury's Office of Financial Research. For more complete information about SOFR's administration, along with detail about the transactions included in the calculation, please visit the New York Fed's website.

What are SOFR futures and options on SOFR futures?

SOFR futures are derivative contracts that deliver the equivalent overnight repo-based financing across specific future quarterly windows. The rate associated with a futures contract—the three-month compounded average SOFR—is based on the market's expectation of the cost of Treasury repo financing each day throughout the contract's indicated reference quarter.

Options on SOFR futures are derivative contracts that give the holder the right, but not the obligation, to buy or sell SOFR futures expiring on (or before) a specific date for a specific price, called the strike price. The price of an option, called the option premium, is based on where the market expects the cost of overnight Treasury repo financing will be relative to the option's strike price once the option expires. Thus, option premiums contain information about the probability that SOFR, over the three months indicated in the contract's reference quarter, will be either above or below the strike price specified in the option contract at expiration.

Both SOFR futures and options on SOFR futures are traded on the Chicago Mercantile Exchange. For more detail about the contract specifications, please visit the CME's website.

What impact do FOMC decisions have on SOFR?

Federal Open Market Committee decisions affect SOFR through the New York Fed's Open Market Trading Desk's (the "Desk's") implementation of monetary policy. Operationally, the Desk is authorized to conduct repurchase transactions with its primary dealers and other eligible financial institutions to apply downward pressure on the federal funds rate and to reverse repurchase agreements to apply upward pressure on the federal funds rate. The Desk also has the authority to conduct unscheduled repurchase transactions should conditions warrant them. Together, these actions can help maintain the federal funds rate within the FOMC's target range and support smooth market functioning. The rates at which repo and reverse repo transactions are conducted are reflected by SOFR.

For more information about the Desk's monetary policy implementation, please go to the New York Fed's website.

Simplex Regression, by Mark Fisher

Market Probability Tracker: Estimation Specifics

Notes from the Vault: Market Expectations of Fed Policy: A New Tool

macroblog: What's Moving the Market's Views on the Path of Short-Term Rates?

CMEGroup FedWatch Tool—Fed Funds Futures Probability Tree Calculator

The Euro-Dollar Market: Some First Principles, by Milton Friedman

ICE LIBOR

Instruments of the Money Market (Richmond Fed)