LIBOR was built on estimates banks could fake. SOFR — its replacement — is built on actual trades. It's the rate banks pay to borrow cash overnight against US Treasury bonds. Real transactions, not what banks claim they'd pay.
When SOFR spikes, cash is getting scarce and liquidity is draining from the system. That's a risk-off signal for the entire market. Interbank rates are a fear gauge — the lesson survived the scandal.
This maps to Module 6.1 — Macro Indicators and Sentiment.
Key Takeaways
- SOFR is the rate banks pay to borrow cash overnight against Treasury bonds
- It's based on real transactions — not bank estimates like LIBOR was
- LIBOR was scrapped after a manipulation scandal; SOFR replaced it
- When SOFR spikes, liquidity drains and risk assets face a headwind — it's a fear gauge
- This maps to Module 6.1 — Macro Indicators and Sentiment
Get the full breakdown and the complete Larke Cycle framework.
For educational purposes only. Not financial advice. Past performance does not guarantee future results. Trading involves risk. Consult a qualified financial adviser before making investment decisions.
I'm Russell Larke — BA (Hons) Business Management, currently completing an MSc in Systems Thinking in Practice, with plans to pursue a doctorate. I've run an environmental consultancy as Managing Director and have traded financial markets for years. I teach the Larke Cycle — a testable framework for understanding market structure beyond chartism. Regards, Russell Larke BA (Hons) Business Management | MSc Candidate (Systems Thinking) Beyond the Chart