Recently I am reading about SOFR (Secured Overnight Financing Rate), which is projected to replace LIBOR to be the reference for risk-free rate in the market.
But I still don't understand or imagine what an underlying transaction that makes up the SOFR would look like? If we look at the resources below:

Based on Wikipedia: SOFR is based on the Treasury repurchase market (repo), Treasuries loaned or borrowed overnight.

And Based on CME's deck on SOFR (link: https://www.cmegroup.com/education/files/what-is-sofr.pdf, page 2):
SOFR is based firmly on transaction data drawn from multiple and diverse sources:

  • Tri-party Treasury general collateral (GC) repo transactions cleared and settled by Bank of New York Mellon (BNYM)
  • Tri-party Treasury GC repo transactions made through the FICC GCF repo market, for which FICC acts as central counterparty.
  • Bilateral Treasury repo transactions cleared through the FICC Delivery-versus-Payment (DVP) service.

I don't have much experience in this area. But here is how I made out of the above resources:

Let's say I am holding a treasury bond/note/bill, I sell it to a party B at the price \$1 and I buy it back from B at the price of \$1.1 the next day. Does it mean that the rate 10% here along with many other rates from similar transactions eventually make up the so-called "SOFR" rate? Am I describing the "Treasury repurchase market" correctly using this example?

And it would be great if anyone could provide a more concrete example of what "Tri-party Treasury general collateral repo transactions" and "Bilateral Treasury repo transactions" mean.

Thanks a lot in advance!


1 Answer 1


Repo is essentially collateralised lending/borrowing, but it is executed via sale and repurchase. The repo rate works the same way as the deposit rate, so would be annualised. General collateral means that the seller has a choice regarding which particular security to provide,e.g., any US treasury as opposed to a specific issue. Triparty means that the collateral management and cash settlement etc are handled by a third party as opposed to bilateral repo in which they two parties will deal with the collateral and cash transfer between themselves.

  • $\begingroup$ Thanks! If I understand correctly, so it is not borrowing/lending treasuries but borrowing/lending cash with treasuries (notes, bills, bonds) as collateral? $\endgroup$
    – codeedoc
    Jun 16, 2019 at 13:14
  • $\begingroup$ Correct but what happens is: you (as buyer) give cash and get the asset at value date, and then get the cash plus int back and return the asset at maturity. $\endgroup$ Jun 16, 2019 at 14:18
  • 2
    $\begingroup$ Simply great and clear! Thank you! $\endgroup$
    – codeedoc
    Jun 16, 2019 at 16:29

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