OBFR and SOFR both measure what it costs to borrow cash overnight in U.S. dollars, but they track different markets and serve different purposes. The Overnight Bank Funding Rate reflects unsecured borrowing between banks, where the lender has no collateral if the borrower fails. The Secured Overnight Financing Rate reflects borrowing collateralized by U.S. Treasury securities, which makes it a near risk-free rate. That single distinction drives everything else: SOFR now anchors trillions of dollars in loans, bonds, and derivatives, while OBFR plays a quieter role helping the Federal Reserve monitor how its policy rate reaches the banking system.
The Core Difference: Secured vs. Unsecured
Every transaction behind OBFR is unsecured. When one bank lends cash to another overnight in the federal funds or Eurodollar market, nothing changes hands as collateral. If the borrower defaults, the lender is exposed. That risk gets priced into the rate as a credit premium. The premium is small when banks trust each other and widens when they don’t.
Every transaction behind SOFR is secured by U.S. Treasuries. The mechanics are a repurchase agreement, or repo: one party sells Treasuries to another and agrees to buy them back the next day at a slightly higher price. The price difference is the interest.1Brookings Institution. What Is the Repo Market, and Why Does It Matter? If the cash borrower fails to buy the Treasuries back, the lender keeps and sells them. That collateral protection strips credit risk out of the rate, which is why the New York Fed describes SOFR as a “near risk-free rate.”2Federal Reserve Bank of New York. How SOFR Works
So OBFR carries a credit premium and SOFR does not. In calm markets that difference is a few basis points. In stressed markets it widens, which is one of the clearest real-time signals of banking-sector strain.
What Each Rate Measures
The Federal Reserve Bank of New York publishes both rates as volume-weighted medians of qualifying transactions from the prior business day, but they draw from entirely different pools.
OBFR is calculated from three types of unsecured overnight borrowing by banks: federal funds trades between depository institutions, Eurodollar transactions (U.S. dollar deposits at overseas bank branches or at domestic international banking facilities), and certain domestic deposits reported on the FR 2420 Report of Selected Money Market Rates.3Federal Reserve Bank of New York. Overnight Bank Funding Rate Daily transaction volume behind OBFR is relatively modest. In late March 2026 it ran between roughly $189 billion and $214 billion per day.4FRED | St. Louis Fed. Overnight Bank Funding Volume (OBFRVOL)
SOFR is calculated from three segments of the Treasury repo market: tri-party repo data from the Bank of New York Mellon, General Collateral Finance (GCF) repo data, and bilateral repo transactions cleared through the Fixed Income Clearing Corporation.5Federal Reserve Bank of New York. Secured Overnight Financing Rate Data Daily volume exceeded $3 trillion in late March 2026, roughly 15 times the volume behind OBFR.6FRED | St. Louis Fed. Secured Overnight Financing Volume (SOFRVOL) That depth makes SOFR extremely hard to manipulate, which was central to its selection as a LIBOR replacement.
The volume gap also reflects a structural shift. After 2008, regulation and bank capital requirements made unsecured interbank lending more expensive, and most overnight cash lending in the U.S. now flows through the secured repo market.
Why the Gap Between Them Matters
OBFR and SOFR sit close together most of the time. A 2018 Federal Reserve memo noted that OBFR and the closely related Effective Federal Funds Rate have generally printed within one basis point of each other since OBFR launched in 2016, and both sit near SOFR under normal conditions.7Federal Reserve Board. The Federal Reserve’s Target Interest Rate
When banks start worrying about each other’s solvency, though, unsecured rates rise relative to secured rates because lenders want more compensation for the risk of default. Watching the OBFR–SOFR spread tells you, in near real time, how comfortable financial institutions are lending to each other without collateral. A widening gap is a stress signal; a narrow gap says the system is calm.
How the Fed Uses OBFR
The Federal Open Market Committee sets a target range for the federal funds rate and steers overnight rates within that range using two administered tools: the interest rate paid on reserve balances (IORB) and the offering rate on its overnight reverse repurchase agreement facility.8Federal Reserve. Economy at a Glance – Policy Rate As of March 2026, IORB is 3.65 percent and the ON RRP rate is 3.50 percent, forming the corridor.9Federal Reserve Board. Implementation Note Issued March 18, 2026
OBFR and EFFR are the Fed’s primary gauges for whether policy is actually landing where the FOMC intends. Both track unsecured overnight borrowing and generally move together. OBFR draws from a broader pool because it adds Eurodollar deposits to federal funds trades, which makes it more resilient to shifts in any single segment. The Fed has noted that if major participants such as Federal Home Loan Banks redirected lending away from federal funds, EFFR volumes could drop sharply while OBFR would remain anchored by its additional data sources.7Federal Reserve Board. The Federal Reserve’s Target Interest Rate
OBFR is not itself the Fed’s policy target, and it does not appear in loan documents. Its job is to monitor transmission.
Where SOFR Shows Up
SOFR is the market-facing benchmark. It responds immediately to changes in the Fed’s corridor: with IORB at 3.65 percent, SOFR printed at 3.65 percent on March 26, 2026, right at the top of the corridor.5Federal Reserve Bank of New York. Secured Overnight Financing Rate Data
After U.S. dollar LIBOR panels ceased on June 30, 2023, SOFR became the dominant U.S. dollar interest rate benchmark, following the Alternative Reference Rates Committee’s 2017 selection of SOFR as its recommended alternative.10Federal Reserve Bank of New York. ARRC: SOFR Transition For residential adjustable-rate mortgages, Freddie Mac and Fannie Mae require the 30-day Average SOFR as the index, and conforming ARM margins must fall between 100 and 300 basis points on top.11Freddie Mac. SOFR ARMs Fact Sheet If 30-day Average SOFR is 4.30 percent and your margin is 2.75 percent, your rate resets to 7.05 percent, subject to any caps in the loan.
In commercial lending, Term SOFR has become the standard reference for syndicated loan agreements. It’s a forward-looking rate published daily by CME Group for one-, three-, six-, and twelve-month tenors, derived from SOFR derivatives markets.12CME Group. CME Term SOFR Reference Rates Benchmark Methodology The ARRC recommends Term SOFR for business loans and as a fallback for legacy LIBOR cash products, but points derivatives, floating-rate notes, and consumer loans to overnight SOFR or SOFR averages, which align better with the deeper SOFR derivatives market.13Federal Reserve Bank of New York. ARRC Term SOFR Scope of Use Best Practice Recommendations
OBFR does not appear in any of these products. Its transaction volume and narrower market participation made it unsuitable as a benchmark for pricing large volumes of financial contracts.
SOFR’s Quarter-End Spikes
One practical quirk worth knowing: SOFR can jump at quarter-end and, to a lesser degree, month-end. Banks pull back from repo activity around regulatory reporting dates to improve their balance sheet ratios, which shrinks the supply of cash in the repo market and pushes rates higher.
In the second half of 2024, the spread between SOFR and the ON RRP rate averaged about 4 basis points on normal days. At quarter-ends it jumped to 24 or 25 basis points, and near year-end in December 2024 it hit 28 basis points. Those spikes have grown more pronounced as the Fed has reduced the size of its balance sheet.14Federal Reserve Board. What Happens on Quarter-Ends in the Repo Market
OBFR does not show the same pattern because it draws from a different market. For a SOFR-linked loan resetting on a quarter-end date, a temporarily elevated rate can get locked in. Term SOFR and SOFR averages smooth out much of this volatility, which is part of why they are preferred over single-day SOFR readings for most lending applications.
Quick Comparison
- Collateral: OBFR is unsecured; SOFR is secured by U.S. Treasuries.
- Credit risk: OBFR includes a credit premium; SOFR is near risk-free.
- Daily volume: OBFR roughly $200 billion; SOFR over $3 trillion.
- Data sources: OBFR from federal funds, Eurodollar, and domestic deposit transactions; SOFR from tri-party, GCF, and bilateral Treasury repo.
- Primary role: OBFR helps the Fed monitor policy transmission; SOFR benchmarks loans, mortgages, bonds, and derivatives.
- Volatility: SOFR can spike at quarter-ends; OBFR is more stable around those dates.
- Typical level: SOFR usually prints at or slightly below OBFR because it carries less risk, though both sit within the Fed’s policy corridor.