easy · Debt Capital Markets bond-instruments-structures

What is the economic significance of 'Secured' in the Secured Overnight Financing Rate (SOFR)?

1. The rate may only be quoted by 'Primary Dealers' who have secured a physical seat on the New York Fed's trading floor.
2. The transactions are backed by Treasury collateral, virtually eliminating the counterparty credit risk in the rate itself.
3. The rate is explicitly guaranteed by the U.S. Treasury never to fall below a 1% annual floor.
4. The interest coupon payments are 'secured' against the issuer's fixed assets through a binding Negative Pledge covenant.

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