A Comprehensive Guide to Understanding and Using SOFR Rates in Finance
SOFR rates, or Secured Overnight Financing Rates, are interest rates charged on secured loans between banks and other financial institutions that are collateralized by U.S. Treasury securities.SOFR rates are determined by the Federal Reserve and are used as a benchmark for pricing a variety of financial products, including loans, bonds, and derivatives.
SOFR rates are a robust and reliable benchmark, as they are based on a large and active market for secured overnight financing. They have also been shown to be more stable than other overnight interest rates, such as the London Interbank Offered Rate (LIBOR). As a result, SOFR rates are increasingly being used as a benchmark for financial products, both in the United States and internationally.