BSBY Swaps & Futures Volume

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Lastest BSBY News

Term SOFR trading ban remains as easing talks collapse ($) – Bernard Goyder | 3/3/2023

Industry attempts to overturn an interdealer trading ban on derivatives linked to the forward-looking version of the secured overnight financing rate, or SOFR, appear to be dead in the water after discussions around a possible easing of trading restrictions reached an impasse
BW Take: Putting this into context, trading restrictions and one-way term SOFR derivative flow has created widening basis exposure, banks become less willing/able to provide Term SOFR swap liquidity to clients, onerous level 3 accounting capital requirements, and clear signs that this can only get worse as we near final cessation on June 30th. BSBY and credit sensitive rates address conflicts between O/N and Term SOFR while adjusting for credit sensitivity in real time.

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Term SOFR gains ground in Asia

IFR – Chien Mi Wong | 2/24/2023

Less than five months before Libor is phased out on June 30, term SOFR is emerging as a preferred benchmark for US dollar loans in Asia given its similar characteristics to its predecessor.
BW Take: The obvious challenges of calculating and administering a backward looking compounded SOFR rate with end-of-period interest calculations have led to an increase in the adoption of Term SOFR across Asia. Despite this move to Term SOFR, concerns over license agreements and reporting obligations not to mention credit spread adjustments, could expand these options to include credit sensitive rates.

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Canada: Interest Rates Watch: What Will The Transition From Cdor To Corra Mean For Borrowers And Lenders? New Spread Adjustments, Compounded Corra In-Arrears Contingency Planning And More

Cassels LLP – Jennifer Wasylyk | 2/21/2023

With publication of the Canadian Dollar Offered Rate (CDOR) set to end in less than 18 months, with over $20 trillion of notional exposure across the Canadian financial system referencing CDOR, the transition from CDOR to a new reference rate will have wide-ranging implications.
BW Take: As Yogi once said, Deja Vu all over again seemingly applies here as the Canadian markets face similar circumstances transitioning from CDOR to CORRA. Similar to SOFR RFR adoption, challenges center around in-arrears rate conversion, demand for Term CORRA, and the variability and imprecise use of credit spread adjustments leaving market participants with a dearth of clarity and precision as markets once again replace apples with oranges.

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Alternative Reference Rates Committee (ARRC) meeting highlights – February 9, 2023

Alternative Reference Rates Committee | 2/15/2023

Highlights from the Alternative Reference Rates Committee (ARRC) meeting on February 9, 2023 provide charts detailing the data from cash and derivatives markets detailing the strong momentum in the transition.
BW Take: Despite the continued growth of basis risk on the balance sheets of banks supporting Term SOFR activity, the term rate task force have not moved away from their initial guidance on best practices recommendations regarding the restricted use of term SOFR. These restrictions will likely serve to accelerate and encourage adoption of more risk-aligned credit sensitive rates such as BSBY.

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NY Fed paper warns of systemic risks from SOFR credit lines. Stress tests need to account for credit facilities being “drawn to the limit”, says Stanford’s Duffie ($) – Helen Bartholomew | 2/8/2023

Regulatory stress tests may need to be updated to account for the acute drawdown risks faced by banks that offer committed credit facilities linked to the secured overnight financing rate, or SOFR, according to a recent staff paper from the Federal Reserve Bank of New York.
BW Take: The expression “everything is fine until it isn’t” would seem to apply to the assumption that a risk-free rate becomes suitable replacement for all-things Libor. As we have said before, a risk-free rate does not broadly reflect a bank’s true cost of funding and this paper examines the impact to SOFR credit lines during times of stress. This shift in terms of line drawing under stressed markets versus normal markets is what Stanford’s Duffie refers to as systemic stress and argues quite well for further examination of credit sensitive rates.

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Term SOFR and BSBY Volumes in 2022

Clarus Financial Technology – Amir Khwaja | 2/7/2023

Having analyzed Term SOFR and BSBY Swap Volumes in April 2022 and new developments in Term SOFR in November 2022, this latest analysis examines how trade volumes in these reference indices developed through January 2023.
BW Take: The party is just getting started. Although Term SOFR accounts for <10% of overall SOFR volume with cap and floor volume representing anywhere from 10-20% of monthly gross notional, over 80% of Institutional loans and CLOs remain Libor-based and must transition over just four and half months. Term SOFR and BSBY adoption rates will likely see some significant activity and bear close scrutiny in the months ahead.

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Ex-Citi Analyst Who Exposed Libor Takes Aim at Its Successor

Bloomberg ($) – William Shaw / Alex Harris | 1/31/2023

Over a decade ago, Scott Peng was one of the earliest voices to call out the scandal-ridden London interbank offered rate. Now, he’s sounding the alarm over its successor. Peng says guidelines designed to limit who can use derivatives tied to the Secured Overnight Financing Rate are inadvertently heaping risk onto banks’ balance sheets, echoing warnings from TD Securities and JPMorgan Chase & Co. Left unchecked, he says, it could pose a significant risk to the smooth functioning of financial markets.
BW Take: As adoption of Term SOFR grows, mounting basis-risk facing banks builds as regulators limit the market’s ability to rely on term benchmarks that lack significant underlying liquidity. Peng joins a chorus of banks such as JPM and TD who have called out accumulating bank basis risk as well as variable costs to borrowers in the form of liquidity premiums & credit spread adjustments that would seem to support the merits of a credit aligned rate such as BSBY.

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BSBY Syndicated
Loan Scorecard

Loan Count
$ 1500000000000
Loan Notional Totals

*Data limited to syndicated loans, as bilateral loan activity is less readily available as of 27-Mar-2023

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Regulatory News

Alternative Reference Rates Committee Meeting Readout

ARRC | 5/18/2022

Topics discussed included CME Group’s SOFR First for Options, momentum towards the Secured Overnight Financing Rate (SOFR), results from the latest sentiment survey of ARRC members, ARRC working group updates, and work evaluating 12-month Term SOFR.
BW Take: As the momentum of SOFR adoption increases, the ARRC meeting highlighted how SOFR swaps accounted for 80% of interest rate risk while SOFR futures volume and open interest closes in on Eurodollar futures volume.

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TRANSITION TO RFRs REVIEW: First Quarter of 2022

ISDA | 4/29/2022

SOFR IRD increased to $12.8 trillion in the first quarter of 2022 vs $5.6 trillion in the fourth quarter of 2021 accounting for 28.2% of US dollar-denominated OTC IRD vs 17.1% in the last quarter of 2021. SONIA IRD decreased by 28.2% to $6.1 trillion in the first quarter of 2022 vs $8.5 trillion in the fourth quarter of 2021 accounting for 99.6% of sterling-denominated IRD traded notional vs 91.5% in the fourth quarter of 2021. €STR IRD increased by 173.5% to $7.3 trillion in the first quarter of 2022 vs $2.7 trillion in the prior quarter accounting for 27.8% of euro-denominated IRD traded notional compared to 22.0% in the fourth quarter of 2021. IRD referencing LIBOR denominated in US dollars, sterling, Swiss franc, yen and euro, as well as EURIBOR and TIBOR, rose by 30.5% to $37.2 trillion in the first quarter of 2022 compared to $28.5 trillion in the fourth quarter of 2021.

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ISDA SwapsInfo First Quarter of 2022 Review: Summary

ISDA | 4/29/2022

The latest ISDA SwapsInfo Quarterly Review shows that trading volume for interest rate derivatives (IRD) and credit derivatives increased in the first quarter of 2022 compared to the first quarter of 2021. This summary provides a high-level overview of key trends in the first quarter of 2022.

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Highlights from the ARRC meeting on March 23, 2022

ARRC 3/23/22 | 3/23/2022

Topics discussed at the meeting included federal LIBOR legislation, momentum towards the Secured Overnight Financing Rate (SOFR), results from the latest sentiment survey of ARRC members, and work evaluating 1-year Term SOFR.
BW Take: In addition to discussing passage of the Consolidated Appropriations Act of 2022 which provides a workable solution for tough legacy Libor contracts, the monthly ARRC discussed the momentum of SOFR adoption where SOFR swaps now account for around 80 percent of interest rate risk traded in the outright linear swaps market and average daily SOFR futures volumes increased by 50 percent month-over-month in February. Additionally, SOFR futures volumes and open interest continue to increase relative to Eurodollar futures and the overall STIR futures market

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Highlights from the  ARRC meeting on February 16, 2022

ARRC | 2/16/2022

Topics discussed at the meeting included the momentum towards the Secured Overnight Financing Rate (SOFR) and the ARRC’s key objectives for 2022
BRN Take: The Alternative Reference Rate Committee discusses the broad adoption of SOFR across linear, non linear and exchange traded derivatives, cross currency swaps, cash instruments and syndicated loans.

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Alternative Reference Rate Committee (ARRC) Newsletter: December 2021 to January 2022

ARRC | 1/25/2022

1. The December 31, 2021 end of sterling, yen, swiss franc, and euro LIBOR achieved a major milestone in the LIBOR transition without market disruption. 2. Progress in the transition to the Secured Overnight Financing Rate (SOFR) accelerated across cash and derivatives markets ahead of the 2021 year-end milestone and into 2022. 3. The U.S. Department of the Treasury and Consumer Financial Protection Bureau (CFPB) issued final rules relating to the transition away from LIBOR.
BW Take: The ARRC monthly discusses the global strength of the Libor transition and how SOFR is dominating both the cleared swap risk and syndicated loan activity relative to Libor. As the spread between risk free and credit sensitive rates like BSBY widen, a multi rate environment may begin to gain momentum.

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BSBY Swaps ADV: Notional value traded of bilateral and cleared interest rate swaps referencing Bloomberg Short-Term Bank Yield Index divided by the number of trading days in each month (i.e. Average Daily Volume)

CME BSBY Futures ADV: Futures contracts ($1 million notional) traded of Three-Month Bloomberg Short-Term Bank Yield Index (BSBY) Futures on CME divided by the number of trading days in each month (i.e. Average Daily Volume)

Source: Clarus Financial Technology data

3M Libor: 3-Month USD Libor (US0003M Index)

3M BSBY: 3-Month Short-Term Bank Yield Index (BSBY 3M Index)

O/N SOFR: Secured Overnight Financing Rate (SOFR Index)

3M Term SOFR: 3-Month CME Term SOFR (SR3M Index)

The BSBY loan scorecard is limited to syndicated loans and does not include bilateral loan activity details that are less readily available.

Syndicated loans occur between a borrower and a dedicated group of lenders who coordinate the provision of funds referencing a fixed or floating rate benchmark.

Totals represent the aggregated notional and count of all syndicated loan activity referencing BSBY since 1/1/2021

Source: Bloomberg