SOFR
Secured Overnight Financing Rate — the benchmark short-term interest rate based on actual overnight Treasury repo transactions, replacing LIBOR.
SOFR (Secured Overnight Financing Rate) is the broad measure of the cost of borrowing cash overnight collateralised by Treasury securities. It is published daily by the New York Fed and is based on actual transactions in the Treasury repo market — over $1 trillion per day.
SOFR replaced LIBOR as the dominant benchmark for floating-rate loans, derivatives, and corporate bonds following the LIBOR scandal and the rate's sunset in 2023. Unlike LIBOR (which was based on bank estimates), SOFR is transaction-based — harder to manipulate and more reflective of actual market rates.
SOFR tracks the fed funds rate closely. Term SOFR rates (1-month, 3-month, 6-month) are widely used in syndicated loans and mortgages. For traders, SOFR futures and swaps are the primary instruments for hedging and expressing views on near-term Fed policy.
Related Terms
CME FedWatch
A CME tool that converts 30-day Fed Funds futures prices into market-implied probabilities of Fed rate moves at upcoming FOMC meetings.
IntermediateFederal Funds Rate
The overnight interest rate at which U.S. banks lend reserve balances to each other — the primary policy rate the Fed targets to steer the economy.
IntermediateFOMC
The Federal Open Market Committee — the Fed body that sets U.S. monetary policy, meeting eight times per year to vote on the federal funds rate target.
IntermediateIORB
The rate the Fed pays banks on reserves held at the Fed — its primary administered tool for steering the fed funds rate within target.
AdvancedQuantitative Tightening
The Fed's policy of shrinking its balance sheet by allowing bonds to mature without reinvesting the proceeds — the reverse of QE.
AdvancedRepo
A repurchase agreement — a short-term (often overnight) collateralized loan where securities are sold and agreed to be repurchased, serving as the plumbing of money markets.
AdvancedReverse Repo
The Fed's tool for absorbing excess reserves from money markets — the counterparty sells Treasuries to the Fed overnight, draining liquidity from the system.
AdvancedSwap
An OTC derivative in which two parties exchange streams of cash flows over time, such as fixed-for-floating interest payments.
Advanced