SOFR explained: the Secured Overnight Financing Rate

By Ken Chigbo, Founder, KenMacro. Published 2026-05-12.

What is SOFR?

SOFR is the US dollar benchmark interest rate published daily by the Federal Reserve Bank of New York since 2018. The rate is calculated as the volume-weighted median of overnight repurchase agreement (repo) transactions collateralised by US Treasuries, drawing from three repo segments: tri-party general collateral, FICC bilateral, and FICC GCF. Daily transaction volume averages around 1 trillion US dollars, making SOFR exceptionally robust against manipulation. SOFR replaced LIBOR (the London Interbank Offered Rate) as the official US dollar reference rate after the LIBOR scandal exposed manipulation in the survey-based LIBOR methodology. The transition completed in mid-2023.

How traders use SOFR

Macro traders reference SOFR in three primary contexts. First, the SOFR futures curve (CME) reflects market expectations of the path of Fed policy and is one of the cleanest reads on the rate-path expectation. Second, the spread between SOFR and the Fed funds rate (the FF-SOFR spread) is a short-end stress indicator; a widening spread typically signals funding-market strain. Third, SOFR-based loan pricing affects corporate-borrower cost and, through that channel, equity valuations. The desk’s daily TA references SOFR curve moves alongside the dot plot when discussing the rate path. SOFR is structurally lower than old LIBOR was because SOFR is secured (collateralised by Treasuries) while LIBOR was unsecured (interbank credit risk).

Common misconceptions about SOFR

The first misconception is that SOFR is the same as the federal funds rate. They are different: SOFR is a secured overnight repo rate calculated from market transactions, while Fed funds is the unsecured overnight interbank rate targeted by the FOMC. The two move closely but can diverge by 5 to 20 basis points, particularly at quarter-end. The second is that SOFR is identical to LIBOR functionally. SOFR is secured and transaction-based; LIBOR was unsecured and survey-based. The structural difference means SOFR sits 10 to 30 basis points below where LIBOR would in normal conditions. The third is that SOFR is set by the Fed. SOFR is calculated from market transactions; the Fed only targets Fed funds.

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Frequently asked

What is the difference between SOFR and Fed funds?

SOFR is the secured overnight repo rate, calculated from actual Treasury-collateralised repo transactions. Fed funds is the unsecured overnight interbank lending rate, targeted by the FOMC. SOFR and Fed funds typically sit within 5 to 10 basis points of each other but can diverge by 20 basis points at quarter-end due to funding-market dynamics.

Where is SOFR published?

SOFR is published daily at 08:00 New York time by the Federal Reserve Bank of New York on its website, alongside related rates (SOFR averages, SOFR index). The KenMacro daily desk read references the current SOFR rate and SOFR futures curve when discussing the rate path. The data is free and public.

Why did SOFR replace LIBOR?

SOFR replaced LIBOR after the 2008-12 LIBOR scandal exposed that the survey-based LIBOR methodology was manipulable by panel banks. Regulators required a transition to a transaction-based, unforgeable benchmark. SOFR was selected because daily repo transaction volume of around 1 trillion US dollars makes manipulation effectively impossible. The transition completed in mid-2023.

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