The Secured Overnight Financing Rate, or SOFR, is a benchmark interest rate published daily by the Federal Reserve Bank of New York, calculated from actual transactions in the overnight repurchase agreement market backed by United States Treasury securities. It was developed as a replacement for LIBOR after manipulation concerns discredited that benchmark, and the 2022 LIBOR Act made SOFR the default replacement rate for contracts that had no other transition mechanism written into them. Because it is calculated from real secured transactions rather than estimates submitted by banks, SOFR is considered a more reliable and lower risk benchmark, and it is now used as a reference rate in commercial lending contracts worldwide.
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