SOFR

SOFR — the Secured Overnight Financing Rate — is the benchmark interest rate for overnight cash borrowing collateralized by US Treasury securities. The New York Fed publishes it each business morning around 8:00 AM ET, calculated as the volume-weighted median of the prior day's overnight Treasury repo transactions across tri-party repo, GCF repo, and FICC-cleared bilateral repo. The underlying market routinely clears well over $2 trillion per day, which makes SOFR the most transaction-grounded interest rate in the world.

SOFR replaced US dollar LIBOR, which ceased publication for remaining panels in June 2023 after the rate-rigging scandals exposed how fragile a survey-based benchmark could be. Today SOFR is the reference rate for the overwhelming majority of new floating-rate corporate loans, securitizations, and interest-rate derivatives: SOFR futures at CME are among the deepest rate contracts on any exchange, and term SOFR (1-, 3-, 6-month) is the standard base rate on syndicated loans. If you have a floating-rate exposure written since 2022, it almost certainly resets off this number.

SOFR printed 3.64% on July 27, 2026, sitting inside the Fed's 3.50-3.75% target range and within a basis point of the effective fed funds rate (3.63%). That tight alignment is the normal state: SOFR tracks the Fed's administered rates because Treasury repo is the marginal use of overnight cash for the entire dealer system.

The information is in the deviations. With the overnight reverse repo facility drained to roughly $1 billion (from a $2.55 trillion peak in December 2022), the money-market cash buffer that used to absorb funding shocks is gone, and every incremental dollar of QT or Treasury General Account rebuild now pulls directly on bank reserves. In this regime, SOFR printing persistently above the interest rate on reserve balances (IORB) — especially at month-ends and around Treasury settlement dates — is the earliest public signal of reserve scarcity. Watch the spread, not the level: SOFR a few basis points over IORB for consecutive sessions historically precedes visible funding stress by weeks.

The canonical SOFR event is September 17, 2019: bill settlement and a corporate tax date collided with shrinking reserves, and SOFR spiked from roughly 2.4% to 5.25% in a single session while the Fed's target was 2.00-2.25%. That episode forced the Fed to restart balance-sheet growth and later to create the Standing Repo Facility (SRF) as a permanent backstop. It remains the template for what reserve scarcity looks like in this series.

Since then SOFR has traced the policy cycle: pinned near zero through 2020-2021, ratcheted to 5.3%+ through the 2022-2023 hiking cycle, and stepped down with the cuts to today's mid-3s. The structural drivers are the Fed's administered rates (IORB and the RRP award rate bracket SOFR), Treasury bill and coupon supply (settlement dates drain cash), dealer balance-sheet capacity (quarter-end regulatory snapshots push repo rates up), and the aggregate level of bank reserves.

First, the SOFR-IORB spread. A persistent positive spread is the single cleanest reserve-scarcity tell now that the RRP buffer is empty. Occasional month-end pops are normal; a drifting average is not.

Second, the distribution, not just the median. The NY Fed publishes the 1st, 25th, 75th, and 99th percentile repo rates alongside SOFR. A widening 99th percentile — the most stressed borrowers paying up — deteriorates before the median moves, exactly as it did in the run-up to September 2019.

Third, Standing Repo Facility usage. The SRF is the designed pressure valve; sustained drawings mean the private repo market is failing to distribute cash at the Fed's ceiling. Pair SOFR with the [net liquidity](/glossary/net-liquidity) picture and the ON RRP balance for the full funding-regime read.