SOFR (Secured Overnight Financing Rate)

The Secured Overnight Financing Rate (SOFR) is a benchmark interest rate that reflects the cost of borrowing cash overnight using U.S. Treasury securities as collateral. It is based on actual transactions in the repo market, where investors lend money to each other for short periods. SOFR serves as a more reliable alternative to LIBOR, which was previously used but faced issues of manipulation. Financial institutions and borrowers often use SOFR to set rates on loans and financial products, making it a key indicator of short-term interest rates in the U.S. economy.