SOFR.
In plain English
SOFR, the Secured Overnight Financing Rate, measures what it costs big financial institutions to borrow cash overnight when they pledge U.S. Treasury bonds as collateral. It is published each business day by the Federal Reserve Bank of New York and is built from real transactions worth hundreds of billions of dollars, which makes it hard to manipulate. SOFR became the main U.S. replacement for LIBOR, the older benchmark that was phased out after a rate-rigging scandal. Today it underpins the pricing of many adjustable-rate business loans, some adjustable-rate mortgages, and trillions of dollars in financial contracts.
01Why it matters
If you have an adjustable-rate loan tied to SOFR, this rate decides whether your payment goes up or down when it resets, so it can quietly change what you owe each year.
02The math, step by step
Imagine a business loan priced at SOFR plus 2 percent. If SOFR is 5 percent at the reset date, the loan charges 7 percent. If economic conditions push SOFR to 5.5 percent at the next reset, the loan rises to 7.5 percent, and on a $200,000 balance that is about $1,000 more in annual interest. For the current published value, see newyorkfed.org.
03What this is NOT
SOFR is not just a renamed LIBOR. LIBOR was based on banks' estimates of unsecured lending rates and was vulnerable to manipulation. SOFR is built from actual secured (Treasury-backed) overnight transactions, so it reflects real trades rather than guesses.
04Receipts
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