U.S. Office of Financial Research: Updated Estimate Suggests Treasury Repo Clearing Rule Could Raise SOFR by About 1 Basis Point

The U.S. Office of Financial Research (OFR) published an updated estimate in October. Under the assumption that the SEC's rule requiring certain Treasury repurchase agreements to enter central clearing does not change participant behavior, the clearing mandate could add slightly more than $500 billion in daily transaction volume to SOFR (the Secured Overnight Financing Rate), while the hypothetical SOFR could rise by only about 1 basis point above the published rate, with volatility roughly unchanged.

SOFR is the benchmark rate for U.S. dollar short-term funding, calculated daily by the Federal Reserve Bank of New York based on actual Treasury repo transactions. The SEC's rule requires certain bilateral Treasury repos to be centrally cleared through FICC's (Fixed Income Clearing Corporation) delivery-versus-payment (DVP) service, with a compliance deadline of June 30, 2027. This means non-centrally cleared bilateral repos (NCCBR) that were previously outside SOFR's calculation would enter the FICC DVP segment and be included in SOFR's transaction volume pool.

OFR's method applies the SEC rule and the Federal Reserve Bank of New York's SOFR eligibility criteria to NCCBR data, assuming all repo volume subject to the clearing requirement is centrally cleared through FICC DVP, and assuming no change in market participant behavior. Compared with the April 2025 preliminary estimate based on three days of pilot data, this update uses a full year of NCCBR data, raising the estimated new volume from about $85 billion to slightly more than $500 billion. Despite this large increase in volume, the hypothetical SOFR could rise by only about 1 basis point above the published rate, with volatility roughly unchanged. This conclusion holds under the premise that details of the SOFR calculation remain unchanged.