The Secured Overnight Financing Rate, or SOFR, is the benchmark interest rate the U.S. financial system now uses in place of LIBOR for most dollar-denominated loans, mortgages, bonds, and derivatives. It measures what it costs to borrow cash overnight when the loan is secured by U.S. Treasury securities, and it is published every business day by the Federal Reserve Bank of New York. As of late March 2026, SOFR stood at roughly 3.65%, with daily transaction volumes regularly topping $2 trillion.1Federal Reserve Bank of New York. Secured Overnight Financing Rate Data
What SOFR Measures
SOFR tracks the cost of overnight borrowing in the Treasury repurchase agreement (repo) market. Every trade behind the rate is backed by U.S. Treasury securities as collateral. If the borrower fails to return the cash the next day, the lender keeps the Treasuries. That collateral makes SOFR a near-risk-free rate.
This is the key structural difference between SOFR and LIBOR. LIBOR estimated what banks said it would cost them to borrow from each other without any collateral, and those estimates were vulnerable to manipulation. The Alternative Reference Rates Committee, a group of private-sector participants and government regulators convened by the Federal Reserve Board and the New York Fed in 2014, chose SOFR as the preferred alternative specifically because it rests on real, observable transactions rather than bank estimates.2Federal Reserve Bank of New York. About – Alternative Reference Rates Committee
Because SOFR is secured and LIBOR was not, SOFR also runs lower than LIBOR did. That gap matters when old LIBOR contracts get converted, and it is the reason credit spread adjustments exist.
How the Rate Is Set Each Day
The New York Fed publishes SOFR at approximately 8:00 a.m. Eastern Time on each business day.3Federal Reserve Bank of New York. Additional Information about Reference Rates Administered by the New York Fed – Section: Calculation Methodology for the TGCR, BGCR, and SOFR The calculation pulls together overnight repo trades from three segments of the Treasury repo market: tri-party repo, GCF repo cleared through the Fixed Income Clearing Corporation, and FICC-cleared bilateral repo. Combined, those segments produced roughly $3.28 trillion in volume on the last business day of March 2026.4Federal Reserve Bank of St. Louis. Secured Overnight Financing Volume (SOFRVOL)
From that pool, the New York Fed calculates a volume-weighted median: trades are sorted by rate, and the rate sitting at the 50th percentile of total dollar volume becomes SOFR. A median is harder to distort than an average because a few unusually high or low trades cannot pull it off center.
Before taking that median, the Fed trims 20% of the lowest-rate volume from the bilateral segment to filter out “specials,” which are trades where someone accepts a below-market return because they need a particular Treasury security rather than cash.5Federal Reserve Bank of New York. Statement on the Implementation of Modifications to the Secured Overnight Financing Rate Leaving those in would understate the true cost of general overnight funding. If an error is discovered after publication, a revised rate may be issued later the same morning.
SOFR Averages and Term SOFR
A single overnight number is not useful for a 30-year mortgage or a six-month business loan. Several forms of SOFR exist to cover longer periods, and the form that applies depends on the product.
The New York Fed publishes compounded averages of SOFR over rolling 30-, 90-, and 180-calendar-day windows, plus a cumulative SOFR Index that tracks the effect of compounding since April 2, 2018.6Federal Reserve Bank of New York. SOFR Averages and Index Data These averages are what most consumer products reference, because they smooth out daily fluctuations and give borrowers predictable payments.
Business loans more often use daily simple SOFR (each day’s rate applied to principal) or compounded SOFR in arrears (interest compounds through the period). Both methods calculate the final rate only after the interest period has run, so contracts typically build in a short lookback so the borrower knows the payment a few days before it is due.7Federal Reserve Bank of New York. An Updated User’s Guide to SOFR
CME Group publishes forward-looking Term SOFR rates for 1-month, 3-month, 6-month, and 12-month tenors, derived from SOFR futures and swaps.8CME Group. CME Term SOFR Reference Rates – Frequently Asked Questions Term SOFR behaves like the old LIBOR tenors: you know at the start of the period exactly what rate applies. The ARRC recommended that Term SOFR be used mainly for business loans and as a fallback for legacy LIBOR cash products, while overnight SOFR and SOFR averages remain the recommended choice for floating-rate notes, consumer loans, intercompany lending, and derivatives.9Federal Reserve Bank of New York. Summary and Update of the ARRC’s Term SOFR Scope of Use Best Practice Recommendations
What SOFR Means for Your Mortgage or Credit Card
If you have an adjustable-rate mortgage originated in recent years, your rate almost certainly references a SOFR average rather than LIBOR. The ARRC’s recommended ARM uses a 30- or 90-day SOFR average set in advance, so the rate for the upcoming payment period is known before that period starts. Typical SOFR-based ARMs add a margin of roughly 2.75% to 3% on top of the index, with periodic adjustment caps often set at 1% per six-month reset and a lifetime cap of 5% above the initial rate.10Federal Reserve Bank of New York. Options for Using SOFR in Adjustable Rate Mortgages
Credit card issuers that previously tied variable APRs to LIBOR had to move to a replacement index while keeping the resulting APR substantially similar to the prior rate. Under Regulation Z, issuers using the ARRC-recommended SOFR-based spread-adjusted index are deemed compliant if they keep the same margin that applied before. If the margin changes, the issuer must disclose the new margin in a change-in-terms notice.11Federal Register. Facilitating the LIBOR Transition (Regulation Z)
The Consumer Financial Protection Bureau also set notice rules for the switch itself. For home equity lines of credit, lenders must notify borrowers at least 15 days before the change takes effect. For credit cards, the notice window is 45 days.12Consumer Financial Protection Bureau. LIBOR Transition FAQs
The LIBOR Switch and Credit Spread Adjustments
LIBOR’s U.S. dollar panel stopped publishing on June 30, 2023.13Financial Conduct Authority. US Dollar LIBOR Panel Has Now Ceased U.S. banking regulators had already directed supervised institutions to stop writing new LIBOR-based contracts by the end of 2021.14Federal Reserve Bank of New York. SOFR Transition Trillions of dollars in old contracts had no instructions for what to do if LIBOR disappeared. Congress addressed that gap with the Adjustable Interest Rate (LIBOR) Act, codified at 12 U.S.C. §§ 5801–5807, which automatically substitutes a SOFR-based rate into contracts that lack effective fallback language. The law also includes a safe harbor protecting lenders and loan administrators from lawsuits over the selection or use of the Board-selected replacement, though they remain responsible for ordinary servicing or clerical errors.15Office of the Law Revision Counsel. 12 U.S.C. Chapter 55 – Adjustable Interest Rate (LIBOR)
Because SOFR runs lower than LIBOR, dropping one in for the other without adjustment would have shifted value from lenders to borrowers. Regulators set fixed credit spread adjustments equal to the five-year historical median difference between each LIBOR tenor and SOFR, locked in on March 5, 2021:
- Overnight: 0.00644%
- 1-month: 0.11448%
- 3-month: 0.26161%
- 6-month: 0.42826%
- 12-month: 0.71513%
These spreads are added to SOFR so the replacement rate approximates what LIBOR would have produced.16Federal Register. Regulations Implementing the Adjustable Interest Rate (LIBOR) Act For consumer loans, the Federal Reserve added a one-year transition period during which the adjustment phased in linearly from the actual market spread at the time of the switch to the statutory fixed value, preventing a sudden payment jump on the changeover date.
Why SOFR Can Jump at Quarter-End
SOFR has one behavioral quirk worth knowing about: it tends to spike at the end of calendar quarters. Large banks pull back from repo lending around those dates to shrink their balance sheet footprint for regulatory reporting, which reduces the supply of cash and pushes overnight borrowing costs higher. In 2024, the spread between SOFR and the Fed’s overnight reverse repo rate hit 24 to 28 basis points on quarter-end dates, compared with zero to nine basis points on ordinary days.17Board of Governors of the Federal Reserve System. What Happens on Quarter-Ends in the Repo Market
If your loan references a 30- or 90-day SOFR average, these spikes are mostly invisible because the average smooths out any single-day jump. They matter more for institutions using daily SOFR or compounded SOFR in arrears, where a single quarter-end print flows directly into that day’s interest accrual.