SOFR, the Secured Overnight Financing Rate, is what it costs to borrow cash overnight against Treasury collateral in the repo market. It is the benchmark US overnight interest rate, and it replaced LIBOR as the reference rate for US floating-rate debt, swaps and futures. The New York Fed publishes it each morning off roughly $2 to $3 trillion of trades that actually happened, which is exactly what LIBOR was not. It also carries almost no credit risk, because there is no bank credit component sitting inside it.
Day to day SOFR tracks the Fed's target range closely, so the deviations are the story. A print that spikes above the top of the range says funding is tight or collateral is scarce in repo. Plenty of those are just the calendar, because quarter-ends and Treasury settlement dates routinely push it a few basis points higher. When it is not the calendar, the September 2019 repo blowout is the episode everyone cites.
SOFR futures and swaps are also where the market prices the whole Fed path, and a huge share of the rate-cut odds quoted in headlines comes off the SOFR curve.
Say the Fed's target range is 4.25% to 4.50% and SOFR has printed 4.35% for weeks. On a quarter-end date it jumps to 4.47%. One print like that tells you nothing on its own. Then it keeps setting 10bp above normal for days, and drift that lasts is what desks read as reserves getting scarce, which is pressure on the Fed to slow or stop QT.
