Secured Overnight Financing Rate (SOFR) Definition and History

The Secured Overnight Financing Rate (SOFR) is a crucial benchmark interest rate in the United States, serving as a replacement for the LIBOR rate. Here are the key points regarding the SOFR: 1. **Definition and Importance**: The SOFR is the average interest rate for secured loans issued in the United States with a maturity of one day, effectively representing the cost of borrowing cash overnight collateralized by Treasury securities. It is calculated from transaction data in the US Treasury repurchase market and is published by the New York Federal Reserve to serve as a benchmark for other debt transactions. 2. **Current Rate and Trends**: As of August 12, 2025, the SOFR is at 4.36%, which is higher than the long-term average of 2.51% and represents an 18.35% decrease from the previous year's rate of 5.34%. This indicates a recent increase in the cost of borrowing in the short-term market. 3. **Historical Performance**: The SOFR has shown fluctuations over the past year, with a high of 5.34% in August 2024 and a low of 4.31% in August 2025. This volatility is typical for short-term interest rates and reflects market conditions and monetary policy signals. 4. **Methodology and Calculation**: The SOFR is calculated as a volume-weighted median of transaction-level tri-party repo data collected from the Bank of New York Mellon, GCF Repo transaction data, and data on bilateral Treasury repo transactions cleared through FICC's DVP service. This methodology aims to provide a robust and representative measure of the overnight financing rate. 5. **Publication and Availability**: The SOFR is published by the New York Federal Reserve on the New York Fed website, with the latest data available on August 13, 2025, at 8:01 EDT. It is essential for financial institutions and market participants to monitor this rate for pricing and risk management purposes. In conclusion, the SOFR is a critical reference rate in the US financial markets, and its current value of 4.36% reflects the current borrowing costs in the overnight market. Its importance is set to continue growing as it serves as a reliable benchmark for various financial transactions.