Secured Overnight Financing Rate (SOFR) - Financial definition
Country
: United States of America
Concise definition of the term Secured Overnight Financing Rate
The Secured Overnight Financing Rate (SOFR) is a benchmark interest rate for overnight loans secured by U.S. Treasury securities. It reflects the cost of borrowing cash overnight using Treasury bonds as collateral.
Comprehensive definition of the term Secured Overnight Financing Rate
SOFR serves as a key reference rate in the financial markets, particularly following its adoption as a replacement for the London Interbank Offered Rate (LIBOR) due to LIBOR's susceptibility to manipulation. SOFR is based on actual transaction data, making it a reliable and transparent measure of borrowing costs.
It is published daily by the Federal Reserve Bank of New York and is used in a wide range of financial products, including derivatives, loans, and mortgage-backed securities. By being grounded in the highly liquid market for Treasury repurchase agreements (repos), SOFR provides a robust reflection of market conditions and interest rate movements.