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Consider the floating leg of a IRS on the RFR which is effective today at $t_1$ and has a payment at $t_1 + 3M$.

My question is, when the payment occurs at $t_1 + 3M$, is this the $3M$ forward rate observed at time $t_1$ (forward-looking), or is it the daily-compounded RFR rates observed throughout the $3M$period (backward-looking).

If the answer is the latter, then isn't that what we do for OIS swaps? Meaning all IRS are now OIS?

If the answer is the former, isn't there a lot of uncertainty about the $3M$ forward RFR rate?

JakcieJnr
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    A couple of years ago ING published some comparisons https://think.ing.com/opinions/sofr-in-arrears-or-term-you-choose/ of term SOFR in advance versus SOFR in arrears, which I hope you may find helpful. – Dimitri Vulis Mar 14 '24 at 01:08
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    Yes the default IRS in GBP, USD, CHF etc. is now an OIS. Personally I use those terms interchangeably these days. EUR, SEK, NOK still use IBOR for IRS. Term SOFR swaps are rarer and actually have had pushback from general national commitees, e.g. ARRC. – Attack68 Mar 14 '24 at 18:41
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    Some details on ARRC concerns regarding term SOFR https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2023/ARRC-Term-SOFR-Scope-of-Use-Best-Practice-Recommendations.pdf – Dimitri Vulis Mar 15 '24 at 03:24
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    For short, default is in arrears. An example replicating SWPM on Bloomberg can be seen here. It's set to pay weekly to make the calculation easier but you can see in arrears is the default and cannot even be changed (on the top of leg2 float in the SWPM screen). – AKdemy Mar 15 '24 at 08:36

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