LIBOR Fallbacks – What will the GBP spread be?

We take a look at historic data for SONIA and GBP LIBOR. ISDA’s work on LIBOR fallbacks allows us to look into the potential values of the historic spread. We compare to the forward-looking LIBOR-OIS spreads to the backward looking compounded RFR values. Initial analysis shows that the look-back period will be an important consideration. […]

RFRs, Cross Currency Swaps and Australian markets

Cross-currency swap markets are in the process of adapting to a post-Libor environment. New trades will reference the RFRs or risk a complicated process of renegotiating fallbacks (in the case of legacy trades) or incorporating the proposed ISDA fallbacks, when the 2006 ISDA Definitions change. Either way, continuing to reference Libor past 2021 will become […]

Compression Auctions for RFRs

At the December 2018 SONIA Working Group, Darrell Duffie (Stanford University), presented a way of compressing existing LIBOR contracts into SONIA contracts. I think it is worth reviewing the suggested methodology. I also put forward a slight alternative that draws heavily on the work of Duffie. This idea is meant for discussion purposes, so please […]

Growth in RFR Markets: Is 2019 the pivotal year?

I have previously written about the changes to derivative markets and the ways they are accommodating and adjusting to replacing Libor. Trades which reference Libor and other like benchmarks are gradually being replaced with RFR trades across many currencies and products as 2021 draws ever nearer. In this blog I will look at some recent […]

ESTER Term Rates

We look at the consultation for forward-looking term rates in ESTER. The number of cleared EONIA swaps is surprisingly low, suggesting a transaction-based methodology will be ruled out. A quote-based system is most likely, but this could replicate existing problems we have with EURIBOR. We note that CCP basis also makes the collation of quotes […]

Cross Currency Swaps and RFRs

The conversation on the use of RFRs (Risk Free Rates) has been developing over the past few months and in this article I will focus on cross currency swaps. The current development of markets in RFRs In most cases the focus has been on single currency swaps where the development of markets based on RFRs […]

RFRs – CHF SARON Activity

We noticed that the SNB quoted Clarus data at the most recent CHF SARON working group. We show that Open Interest in SARON now stands at nearly CHF60bn. Most of this is in short-dated products, less than 2 years. We find that 77% of risk is traded in tenors shorter than 2 years. Markets need […]

Non-Dealer users of RFRs: The need for term rates

Over the last year it has become obvious that Libor will not have a long-term future; so why are market participants still writing derivative and loan deals as well as issuing bonds linked to Libor?
Liquidity in markets linked to new benchmarks is gradually increasing but still falls short of dominating Libor-based product.

LIBOR Basis Swaps

For the first time, basis trading reported to the SDRs has topped $1trn in a single month. Similarly, global basis trading has now topped $2trn cleared at LCH SwapClear in a single month. We see that average maturity of basis trades varies according to the indices being traded. Activity in 30y and 50y basis trading […]

RFRs – ISDA announce LIBOR fallback methodology

ISDA have announced a preliminary methodology for Libor fallbacks. This will be the RFR plus a historical spread. This announcement could have a pronounced impact on basis trading. Elsewhere, we have seen continued SOFR trading and the results of the BoE Term Sonia consultation. CLARUS01 already replicates this LIBOR fallback methodology. Risk Free Rates Everywhere […]