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SOFR (Secured Overnight Financing Rate)

The volume-weighted median rate on overnight Treasury repo, published daily by the New York Fed and the main US dollar benchmark rate.

SOFR replaced US dollar libor as the reference for swaps, floating rate loans and floating-rate-notes. Unlike LIBOR it is based on actual transactions, roughly a trillion dollars a day of repo, rather than submitted estimates.

Because it is secured and backward-looking, SOFR contains almost no bank credit risk, so it spikes on funding stress rather than credit stress. Quarter-end and year-end prints often jump as dealers shrink balance sheets.

Example: SOFR fixes at 5.31% while effr is 5.33%. A loan priced at SOFR + 150 bp therefore charges 6.81% for that day, and compounds daily over the interest period.

Related: repo, effr, libor, ois, floating-rate-note

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