medium · Debt Capital Markets
Why did the market transition from LIBOR to SOFR, and what is a key structural difference between the two benchmarks?
- SOFR includes a credit premium that rises during financial crises to protect lenders.
- SOFR is a transaction-based risk-free rate, whereas LIBOR was a survey-based rate embedding bank credit risk.
- SOFR is a term rate set in advance for 3 months, while LIBOR was always an overnight rate.
- SOFR is based on unsecured interbank lending estimates provided by major banks.
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