SOFR

The Secured Overnight Financing Rate (SOFR) is the overnight interest rate used for US dollar-denominated loans and derivatives in the overnight market. It indicates how much a bank will have to pay to borrow cash from another institution. The rate is underpinned by US treasury securities, which a bank will offer as collateral to secure their overnight cash loans. These loans are a vital part of trading derivatives, as they allow parties to speculate on interest rates and borrowing costs.