SOFR

SOFR, the Secured Overnight Financing Rate, is the benchmark US overnight interest rate, measuring the cost of borrowing cash overnight against Treasury collateral in the repo market. Published each morning by the New York Fed from roughly $2–3 trillion of actual transactions, it replaced LIBOR as the reference rate for US floating-rate debt, swaps, and futures.

Traders watch SOFR on two levels. Day to day, it tracks the Fed’s target range closely, so deviations are the story: a SOFR print spiking above the top of the range signals funding stress or collateral scarcity in repo, the September 2019 repo blowout being the canonical episode. Strategically, SOFR futures and swaps are where the market prices the entire Fed path; a huge share of rate-cut odds quoted in headlines ultimately comes off the SOFR curve.

• Unlike LIBOR, SOFR is transaction-based and nearly risk-free: no bank credit component.
• Quarter-ends and Treasury settlement dates routinely nudge it a few basis points higher.

Worked example: The Fed’s target range is 4.25–4.50% and SOFR has printed 4.35% for weeks. On a quarter-end date it jumps to 4.47%, then keeps setting 10bp above normal for days. Desks read persistent upward drift as reserves growing scarce: pressure on the Fed to slow or stop QT.