SOFR Rate history
SOFR closed down 4.57 as of November 27, 2024 from 4.58 from the previous day, 4.56 last week and 4.81 last month.
| Last Update 2024-11-27 | Rate 4.57 |
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SOFR Rates Chart
What is the SOFR rate
SOFR is an overnight, nearly risk-free rate based on transactions in the U.S. general collateral repurchase (repo) markets. SOFR is published by the NY Fed and is widely anticipated to replace the USD LIBOR as the reference rate for many floating-rate loans. SOFR is the average intrest rate at which institutions can borrow US dollars overnight while posting US Treasury bonds as collateral.- SOFR is endorsed by the Fed-sponsored Alternative Reference Rates Committee (ARRC) to be used in the USD marketplace
- SOFR is published by the Federal Reserve Bank of New York in cooperation with the U.S. Office of Financial Research since April 3, 2018
- Recognized by S&P Global Ratings as an "anchor money market reference rate"
SOFR is calculated using data from the overnight repo market, where financial institutions lend and borrow cash to each other using U.S. Treasury securities as collateral. It is based on the interest rates of these transactions and is designed to be a more transparent and reliable benchmark than LIBOR.
One of the key advantages of SOFR is that it is based on actual transactions in the repo market, rather than the estimates and surveys that are used to calculate LIBOR. This makes it less susceptible to manipulation and other forms of interference, and provides a more accurate picture of the true cost of borrowing in the U.S. financial system.
SOFR is currently being used as an alternative to LIBOR in some financial contracts, and is expected to become the standard reference rate for short-term interest rates in the U.S. over the coming years. It will be used to set interest rates on a wide range of financial products, including mortgages, student loans, and corporate bonds.
SOFR rate overview & history
The Secured Overnight Financing Rate (SOFR) is a benchmark interest rate for dollar-denominated loans and derivatives. It reflects the cost of borrowing cash overnight, using U.S. Treasury securities as collateral. SOFR was introduced as a part of global efforts to transition from the London Interbank Offered Rate (LIBOR), which had been the dominant benchmark for decades but faced numerous issues, including manipulation scandals and declining transaction volumes.- Origins and Need for a New Benchmark: LIBOR Scandal and Shortcomings: LIBOR, which was calculated based on submissions from a panel of banks, became embroiled in manipulation scandals around 2012. Its reliability was further questioned as the volume of underlying transactions declined, making it less representative of actual market conditions.
- Regulatory Response: In response to these issues, regulators and market participants sought a more robust and transaction-based benchmark. The U.S. Federal Reserve convened the Alternative Reference Rates Committee (ARRC) in 2014 to identify and recommend an alternative.
Selection of SOFR
- Criteria for Selection: The ARRC considered several alternatives before selecting SOFR. Key criteria included the volume and liquidity of the underlying market, robustness against manipulation, and representativeness of the funding costs for a broad set of market participants.
- Underlying Market: SOFR is based on actual transactions in the U.S. Treasury repurchase (repo) market, where institutions borrow or lend cash overnight secured by U.S. Treasury securities. This market is deep and liquid, with around $1 trillion in daily transactions, making SOFR a reliable and stable benchmark.
Introduction and Implementation
- First Publication: The Federal Reserve Bank of New York began publishing SOFR on April 3, 2018. This marked a significant step toward enhancing transparency and integrity in financial markets.
- Transition Planning: The ARRC has laid out a comprehensive transition plan to facilitate the adoption of SOFR, including timelines, fallback language for contracts, and guidance for market participants. This transition is expected to be completed by June 2023, when LIBOR will no longer be published.
Characteristics and Benefits of SOFR
- Secured Nature: Unlike LIBOR, which was an unsecured rate, SOFR is secured by U.S. Treasury securities. This reduces the risk of credit exposure and makes SOFR less prone to volatility during financial stress.
- Transaction-Based: SOFR is derived from actual transaction data, making it a more accurate reflection of market conditions compared to the survey-based LIBOR.
- Overnight Rate: As an overnight rate, SOFR reflects the cost of borrowing for a very short duration, which provides a stable benchmark for a wide range of financial instruments.
Benefits
- Reliability: SOFR's basis in a large volume of daily transactions ensures its reliability and robustness.
- Reduced Manipulation Risk: The transaction-based nature of SOFR minimizes the risk of manipulation, which plagued LIBOR.
- Market Confidence: The adoption of SOFR is expected to restore confidence in benchmark rates and enhance the stability of financial markets.
- SOFR is endorsed by the Fed-sponsored Alternative Reference Rates Committee (ARRC) to be used in the USD marketplace
- SOFR is published by the Federal Reserve Bank of New York in cooperation with the U.S. Office of Financial Research since April 3, 2018
- Recognized by S&P Global Ratings as an "anchor money market reference rate"
SOFR is calculated using data from the overnight repo market, where financial institutions lend and borrow cash to each other using U.S. Treasury securities as collateral. It is based on the interest rates of these transactions and is designed to be a more transparent and reliable benchmark than LIBOR.
One of the key advantages of SOFR is that it is based on actual transactions in the repo market, rather than the estimates and surveys that are used to calculate LIBOR. This makes it less susceptible to manipulation and other forms of interference, and provides a more accurate picture of the true cost of borrowing in the U.S. financial system.
SOFR is currently being used as an alternative to LIBOR in some financial contracts, and is expected to become the standard reference rate for short-term interest rates in the U.S. over the coming years. It will be used to set interest rates on a wide range of financial products, including mortgages, student loans, and corporate bonds.