The Secured Overnight Financing Rate (SOFR) is a benchmark interest rate that serves as an alternative to the London Interbank Offered Rate (LIBOR). It was developed by the Federal Reserve Bank of New York in collaboration with the Treasury Department and various market participants. SOFR is designed to reflect the cost of borrowing cash overnight collateralized by U.S. Treasury securities.

SOFR is based on actual transactions in the repurchase agreement (repo) market, where financial institutions borrow and lend money overnight using Treasury securities as collateral. This makes it a more reliable and transparent benchmark compared to LIBOR, which was based on estimates submitted by banks.

The shift from LIBOR to SOFR was initiated due to concerns about the integrity and reliability of LIBOR and the need for a more robust and representative benchmark rate. The transition to SOFR has significant implications for the financial industry, as it impacts various financial products, including loans, mortgages, derivatives, and bonds.

SOFR is widely regarded as a key interest rate for the financial markets and is increasingly adopted by market participants as the preferred benchmark for pricing and valuing financial instruments.