The Great Index Reformation is coming. (I note in passing that the last Reformation led to the 100 Years War…just saying.) This is a massive change to our market that did not bubble up from the great unwashed on the barricades demanding change, but something that has been driven from the regulatory heights. More a Peter the Great and less a Lenin sort of thing. This transformation of the entire floating rate market from LIBOR to SOFR is scheduled to arrive in a market near you on January 1, 2022. After that date, with very few exceptions, the banks will neither give nor take LIBOR. Of course, they actually could do so, as the FCA has said that one-month LIBOR will be representative until June of 2023, but the regulators have made it clear that to do so would be considered an unsafe, unsound banking practice and no bank is going to volunteer for that appellation.
Continue Reading LIBOR and SOFR: Welcome to a Two-Speed Market?
AARC
Dechert OnPoint: Term SOFR is Here!
While many of us may be sneaking in one final summer vacation, the ARRC showed no signs of a slowdown as they formally recommended the CME Term SOFR Rates. Issues with SOFR aside, it looks like the rate really is here to stay. Read more about the latest developments from Dechert’s LIBOR task force in…
The Powers That Be Are Rallying Around SOFR and That’s a Mistake
To my gentler readers, first an apology for this interregnum in publication. I’ve been sitting on this commentary like a hen on an egg for weeks. All I can say is having to work for a living gets in the way of writing about interesting stuff.
It’s now July and supposedly the transition from LIBOR to SOFR is almost already a done deal. Anyone notice that happening? Not to bury the lead but it hasn’t happened. Note that even the ARRC, between harrumphs about the slow take-up of SOFR products, has said that MAYBE they’ll let folks use Term SOFR soon (although they are still being a bit cagey on when and, perhaps more importantly, who will be given that privilege). That’s not good if we’re gonna base an entire floating rate marketplace on SOFR.Continue Reading The Powers That Be Are Rallying Around SOFR and That’s a Mistake
LIBOR: The Monty Python Parrot of Finance
COVID-19 has driven anxiety over the LIBOR transition right off almost everyone’s top-of-mind list and yet the crisis is taking no notice of that lack of regard and soldiering on. The ARRC continues to beaver away, generating guidance and advice and otherwise proselytizing the need to get on with it and be ready for transition on January 1, 2022.
But are the markets listening? Look at our ardor! Except for special situations, the use of SOFR, to date, has been a political and not an economic decision for those who have elected to use it. There is little take-up in the real world and little enthusiasm for doing so. And what’s with the huge whoops a few weeks ago when SOFR’s March to the Sea was interrupted when the Fed backed off using SOFR in the Fed’s new $6 billion aid program for small and mid-size businesses? Run away! Run away! Back to LIBOR!Continue Reading LIBOR: The Monty Python Parrot of Finance
Quick Note: The ARRC Spread Adjustment Consultation
The ARRC Consultation on Spread Adjustment Methodologies for Fallbacks in Cash Products Referencing USD LIBOR is finally here. How the spread adjustment from LIBOR to a SOFR index will be calculated is one of the more consequential open items on the ARRC’s to-do list.
Continue Reading Quick Note: The ARRC Spread Adjustment Consultation