Libor Risk – Quarterly report Q2 2021
The countdown to Libor’s demise is officially under way. At the end of 2021 most settings, including sterling and yen, will cease. At the same time, widely used US dollar settings, which were granted an 18-month reprieve, will no longer be available for new business. If a recent jump in Libor usage is anything to go by, regulators face a Herculean task prising dollar markets off the discredited rate by year-end. The mission is complicated by huge swathes of the US lending market, which are yet to be convinced by overnight SOFR. Many would prefer something altogether more ‘Libor-like’ – and the market seems determined to offer them a growing menu of alternatives to pick from. The new breed of credit-sensitive rates incorporate transaction volume thresholds to ensure they remain representative of the markets they aim to track – a central tenet of benchmark principles devised by Iosco. Understandably, regulators are keen to avoid a repeat of Libor’s past failings, where $200 trillion of risk teetered on $500 million worth of transactions.
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Market fragmentation – The impacts of multiple rates and conventions
A forum of industry leaders discusses key developments in benchmark reform, and the strategic, operational and technological challenges involved in Libor transition
BoE’s post-Libor clearing plan leaves yen swaps in limbo
Sonia and €STR will be mandated for clearing, while Tonar must wait until liquidity settles
Options to mitigate the challenges of index cessation fallbacks and conversion
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CDS market prepares to join Libor transition
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Fed-backed working group puts term rate back on track, but low volumes keep endorsement on hold
Prudential, Goldman cast doubt on Libor-like replacement rates
Isda AGM: Participants split on case for credit-sensitive rates in post-Libor world
Accurate RFR hedges face liquidity trade-off, participants say
Isda AGM: Aligning swaps with assorted cash market conventions requires users to weigh liquidity cost
Corporates remain on swaps fallback sidelines
Risk.net analysis finds just 14 out of 100 large non-financial firms have signed up to Isda fallback protocol
FCA could get legal with USD Libor laggards
Incoming powers permit regulator to ban use of benchmarks with known cessation dates – but only for UK-supervised firms
Botched fallbacks leave CLOs facing early Libor switch
Nearly two-thirds of CRE securitisations issued since 2019 have already triggered fallback clauses
Isda plans second benchmark protocol by ‘end of this year’
Sequel needed to facilitate benchmark transition in countries such as India and the Philippines