The Secured Overnight Financing Rate (SOFR) is a benchmark interest rate that represents the cost of borrowing or lending overnight cash in the U.S. Treasury market. It is considered to be a more robust and transparent alternative to the London Interbank Offered Rate (LIBOR), which has been widely used as a benchmark rate in financial markets.SOFR is based on the transactions of overnight Treasury repurchase agreements (repos), which are secured loans in which one party agrees to sell a Treasury security to another party with the agreement that the security will be repurchased the next day at a higher price. The SOFR is calculated as the volume-weighted median of the repo transactions in the market.SOFR is administrated by the Federal Reserve Bank of New York and is published every day at 8:00 am Eastern Time. It is considered to be a more reliable benchmark rate than LIBOR, as it is based on actual transactions in the market, rather than on the estimates of a panel of banks.SOFR is used as a benchmark rate for various financial products such as interest rate swaps, futures, and options. It is also used as a reference rate for floating rate loans and for adjustable rate mortgages.It is important to note that SOFR is an overnight rate, which means that it is more volatile than other benchmark rates like the federal funds rate. It also means that it should be used in the context of overnight or short-term borrowing or lending.
