Lookback Period
A fixed number of business days by which rate observations are shifted earlier, allowing interest to be calculated before the payment date.
Lookback Period
A lookback period (also called an observation lag) is the number of business days by which overnight rate observations are shifted back relative to the accrual period in a compounded-in-arrears loan.
The Settlement Problem
In a compounded-in-arrears loan, the final overnight rate is published on the last business day of the interest period. Without a lookback, the lender cannot calculate the interest bill until that day — leaving no time to issue an invoice, check the calculation, and receive payment.
How It Works
With a 5-business-day lookback, the rate used for each accrual day is the overnight rate published 5 business days earlier:
| Accrual Date | Rate Used (Lookback = 5 BD) |
|---|---|
| Monday 1 June | Rate from Monday 25 May |
| Tuesday 2 June | Rate from Tuesday 26 May |
| ... | ... |
| Friday 27 June | Rate from Friday 20 June |
| Monday 30 June | Rate from Monday 23 June |
Because 23 June is already published before 30 June's payment date, both parties can calculate and settle on time.
Two Conventions
There are two variants of the lookback:
1. Lookback Without Shift (ARRC Syndicated Loan Standard)
Only the rate is shifted back 5 business days. The day weight (dᵢ — the number of calendar days each rate covers) stays anchored to the accrual date. This is the convention recommended by ARRC for US syndicated loans.
2. Observation Shift (FRN / Bond Market Standard)
Both the rate and the day weight are taken from the observation date (5 days earlier). The interest accrues as if you were in the observation period, not the accrual period. Used in floating-rate notes and bonds.
Recommended Lookback
The ARRC recommends 5 business days for most syndicated loans. Some bilateral loans use 2 or 3 days depending on settlement infrastructure.
Model the effect of different lookback periods using the RFR Loan Calculator.