Overnight Risk-Free Rates: A User’s Guide
This user guide to overnight risk-free rates (RFRs) provides details on how RFRs are calculated to clarify how overnight RFRs can be used in cash products and to encourage adoption of these rates where they are appropriate.
Overnight RFRs are robust because they are anchored in active, liquid underlying markets. This contrasts with the scarcity of underlying transactions in the term interbank and wholesale unsecured funding markets from which some IBORs are constructed, a characteristic which could make them susceptible to manipulation. The FSB encourages the development and adoption of such overnight RFRs where appropriate, for example in business where term properties are not needed, or where exposure to bank credit risk is not necessary or desirable, in order to enhance financial stability.