Let's look at how sofa futures behave as they approach expiry.

Using the December 20, 24, 3 month sofa contract as an example.

This chart shows three things over time, the daily trading volume in green, open interest in blue, and the futures price in peach.

Let's start with open interest.

The number of contracts still outstanding.

You can see that it remains elevated throughout most of the contract's life, and even stays high during the reference period.

That's because many traders continue to hold their positions until very close to final settlement.

Now, contrast that with trading volume.

Daily volume is strong and active throughout much of the contract's life, but drops sharply once the reference period begins.

Why? Because at that point, daily sofa fixings start coming in and the future's price becomes less sensitive to changing expectations and more anchored to the realized overnight rates.

That anchoring effect is clearly visible in the future's price.

Early in the contract's life, the price is more volatile, reacting to shifts in rate expectations.

But as time passes, and especially once the reference period begins, each new sofa fixing gets locked into the final average.

And with every new data point, there's less and less left to speculate on.

So the price volatility declines significantly, not because the market is suddenly calm, but because the outcome is becoming mechanically more fixed.

In a sense, we are just averaging over a longer and longer series of known numbers.

The result is a narrowing of possible final outcomes, and with it a much more stable futures price.

By the time we're halfway through the reference period, most of the price risk is gone.

And with it, most of the incentive to actively trade the contract traders shift their attention to newer, more active expiries, further out the curve.

In short, open interest stays high into expiry, reflecting held positions.

Volume drops once the reference period begins.

As price sensitivity declines, price volatility shrinks as more sofa fixings are known, and the final settlement rate becomes increasingly locked in.