medium · Debt Capital Markets bond-instruments-structures
What is the primary difference between SOFR and the now-discontinued LIBOR benchmark?
- SOFR is used only for corporate bonds, whereas the LIBOR benchmark was reserved strictly for government auctions.
- SOFR is a forward-looking term rate fixed for a three-month tenor, whereas LIBOR was strictly an overnight rate.
- SOFR embeds a meaningful bank credit risk premium, whereas LIBOR was always treated as an entirely risk-free rate.
- SOFR is a secured rate based on actual repo transactions, while LIBOR was an unsecured rate based on expert judgement.
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