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What is SOFR and how is it structured? Why is SOFR replacing LIBOR in the global...

  • What is SOFR and how is it structured? Why is SOFR replacing LIBOR in the global liquidity markets?
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The SOFR stands for Secured Overnight Financing Rate. This rate will slowly reduce the dependence on LIBOR. Banks will adopt this rate to back the US denominated loans and derivatives.

SOFR is based on the transactions that take place in the treasury repurchase market , where the banks and the investors borrow or loan treasuries overnight.

It is replacing the LIBOR as it has been noticed that there is a sharp decline in loans which are being backed by the LIBOR. Over time more and more loans will be backed by the SOFR and this will eventually decline the dependence on the LIBOR.

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