SOFR vs Fed Funds Rate
SOFR (Secured Overnight Financing Rate) traded at approximately 3.62 percent in April 2026, with daily volume of approximately $2 trillion. The effective fed funds rate (EFFR) sat at approximately 3.63 percent, within the FOMC target range of 3.50 to 3.75 percent.
Also known as: SOFR (secured overnight financing rate) · Federal Funds Rate (fed rate, interest rate)
Why This Comparison Matters
SOFR (Secured Overnight Financing Rate) traded at approximately 3.62 percent in April 2026, with daily volume of approximately $2 trillion. The effective fed funds rate (EFFR) sat at approximately 3.63 percent, within the FOMC target range of 3.50 to 3.75 percent. The 1 basis point spread reflects normal market conditions. Both rates are anchored to Fed policy through the Standing Repo Facility (cap) and the Reverse Repo Facility (floor). The pair only becomes informative when stress emerges: the September 2019 episode saw SOFR spike 315 basis points above EFFR before Fed repo operations restored normalcy.
What SOFR and Fed Funds Capture
SOFR (Secured Overnight Financing Rate) is the volume-weighted median of overnight Treasury repo transactions. April 2026: SOFR approximately 3.62 percent, daily volume approximately $2 trillion. SOFR is published by the Federal Reserve Bank of New York at 8:00 AM ET each business day, reflecting the prior day transactions.
The effective fed funds rate (EFFR) is the volume-weighted median of overnight federal funds transactions among depository institutions. April 2026: EFFR approximately 3.63 percent, well within the FOMC target range of 3.50 to 3.75 percent. EFFR is published daily by the New York Fed. The pair compares secured (collateralized by Treasuries) overnight funding versus unsecured (interbank) overnight funding. Normal spread: SOFR within plus or minus 5 basis points of EFFR.
Secured vs Unsecured Overnight Funding
SOFR is secured: lenders receive Treasury collateral against the overnight loan. Default risk is essentially zero (the Treasury collateral is liquid and high-quality). EFFR is unsecured: depository institutions lend to each other based on credit standing. Default risk is small but non-zero.
In normal markets, secured and unsecured overnight rates converge because the additional credit risk on EFFR is small (banks rarely default on overnight loans). Theoretically, EFFR should slightly exceed SOFR by approximately 1 to 5 basis points (representing the credit risk premium on unsecured lending). In stress, the spread can widen substantially: secured rates remain anchored to Fed policy while unsecured rates spike on credit concerns. The 2008 GFC saw the related TED spread (3-month LIBOR minus 3-month T-bill) blow out to 460 basis points in October 2008.
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Frequently Asked Questions
What is the difference between SOFR and Fed Funds?+
SOFR (Secured Overnight Financing Rate) is the volume-weighted median of overnight Treasury repo transactions, secured by Treasury collateral with essentially zero default risk and approximately $2 trillion daily volume. The effective fed funds rate (EFFR) is the volume-weighted median of unsecured overnight federal funds transactions among depository institutions, reflecting interbank credit. April 2026: SOFR 3.62 percent vs EFFR 3.63 percent (1 basis point spread). Both are anchored to Fed policy through the Standing Repo Facility (cap) and the Reverse Repo Facility (floor).
What is the normal SOFR-EFFR spread?+
Long-run SOFR-EFFR spread (since SOFR launched April 2018): plus or minus 5 basis points, with EFFR slightly above SOFR on average. April 2026: 1 basis point. The Fed targets EFFR within the FOMC range, and SOFR typically tracks within a few basis points through the SRF (caps at upper FOMC bound) and RRP (floors at lower FOMC bound) corridor system. The pair becomes informative only when spread exceeds 10 basis points sustained.
What was the September 2019 repo crisis?+
September 17, 2019 produced the largest SOFR spike since launch. SOFR briefly traded as high as 5.25 percent versus EFFR at 2.13 percent, a 315 basis point spread. The spike was caused by Treasury repo collateral scarcity: Treasury auction settlements plus corporate tax payments drained liquidity simultaneously, and dealer balance sheets were too constrained to provide short-term funding. Fed responded with overnight repo operations of $75 to $120 billion per day. By September 18, SOFR retraced to 2.50 percent. The episode led directly to the creation of the Standing Repo Facility in July 2021.
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