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Latest BSBY News
Baker McKenzie (R) – Mark Tibberts, Caitlin McErlane, John F. Lawlor | 8/22/2023
The IOSCO 7/3 statement that the administrators of the Bloomberg Short-term Bank Yield Index (BSBY) and Ameribor should refrain from representing that such rates comply with the IOSCO Principles seems like a death knell for USD credit-sensitive rates (CSRs). Despite this “guidance”, some lenders have indicated a preference for rates like BSBY that reflect counterparty credit risk and the US LIBOR Act permits US banks to use such rates regardless of the IOSCO statement and lack of regulatory oversight.
BW Take: By ignoring the variability of funding costs between large and small banks, regulators and IOSCO have created a costly and dangerous environment for smaller banks with higher funding costs. Fears of a reverse pyramid seem like a thinly veiled defense for a RFR that has allowed systemic risk to flourish during a critical interest rate cycle.
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Risk.net ($) – Helen Bartholomew | 8/8/2023
Despite the July 3 IOSCO declaration that the two most widely used CSRs in US lending markets – Bloomberg’s short-term bank yield index (BSBY) and the American Financial Exchange’s (AFX) Ameribor – fell short of its principles for financial benchmarks, these benchmark administrators seem ready to address the concerns head on.
BW Take: The baseless report from IOSCO sans data or specific mention that Term SOFR also faces similar concerns, has only served to ignite the focus on CSRs and question the credibility of IOSCO and their complete absence of oversight authority. One person’s view is that this has always been about keeping focus on the chosen one (SOFR) despite the absence of an active, responsive and risk-efficient credit spread. Smart people are laughing.
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Bloomberg LP | 7/11/2023
Bloomberg’s bulletin provides a detailed performance overview of the Bloomberg Short-Term Bank Yield Index (BSBY) from the beginning of ’22 inclusive of historic and recent periods of market stress. Daily underlying volumes across published tenors and details of the waterfall process that can be utilized if liquidity is challenged are provided as is detail on the existing BSBY user and product landscape and its use across the lending markets.
BW Take: BSBYwatch was borne out of the recognition of the market’s need for a stable, credit-sensitive rate supported by the deep and robust transaction data that sets it far apart from Libor. This report highlights how BSBY is the correct reference rate for transactions where Risk Free Rates with the added cost of credit spreads and a restrictive swap market are simply inappropriate.
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Substack.com (R) – Ed Ivey | 7/11/2023
IOSCO doesn’t have any actual legal authority. No one is going to jail for using BSBY or AMERIBOR – i.e., they cannot deem a rate “not IOSCO compliant” thereby outlawing its use. IOSCO sets principles, then someone like Bloomberg hires an auditor to review their rates and determine whether, in the opinion of the auditor, BSBY satisfies IOSCO’s principles. In fact, that is exactly what BSBY did do.
BW Take: A very good synopsis of where we are now with CSRs including the lack of IOSCO regulatory authority who incidentally have not provided any detail on the review that supported their recent decision on SOFR rate alternatives. IOSCO has set the stage for a practical debate on ALL Libor replacements and that’s a very good thing.
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Risk.net ($) – Helen Bartholomew | 7/4/2023
The role of credit-sensitive rates in the post-Libor landscape has been thrown into doubt after the International Organization of Securities Commissions ruled that they do not comply with international benchmark standards.
BW Take: Despite an independent audit concluding BSBY’s compliance with the 19 core IOSCO principles, this latest ruling, while not a ban, will re-examine the makeup and volume underpinning CSRs and defined use cases.
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The International Organization of Securities Commissions (IOSCO) | 7/3/2023
The IOSCO Review of Alternatives to USD Libor assessed the extent to which 4 benchmarks developed as potential substitutes for USD LIBOR – two credit sensitive rates and two Term SOFR rates, have implemented IOSCO’s 2013 Principles for Financial Benchmarks. In the report, varying degrees of vulnerability of concern with each rate’s implementation of the Principles were identified along with areas for improvement.
BW Take: A well-documented and data-rich credit sensitive rate seems essential to the health of the financial system. IOSCO are likely looking to refine the requirements and use cases to assure the market embraces a robust and stable solution.
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Reuters – Huw Jones | 7/3/2023
The use of four dollar-denominated alternatives to the now scrapped Libor interest rate need restrictions to avoid threatening financial stability, a global securities watchdog said on Monday.
BW Take: Concerns that the volume underpinning CSRs become vulnerable during periods of market stress seem to also apply to a bank’s ability to provide SOFR-based credit lines during times of stress.
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Risk.net ($) – Helen Bartholomew | 6/29/2023
On June 30th, trillions of dollars of cash and derivatives contracts are moving over to SOFR. Firms hoping to use credit-sensitive alternatives, such as BSBY and Ameribor, are still waiting for IOSCO to rule on whether these benchmarks comply with its standards, which are widely regarded as the minimum for regulated firms.
BW Take: To cut through the noise, IOSCO might want to consider the logic of why $900 billion in overnight transactions presents a better baseline reference rate than $600 billion across a diverse pool of maturities and transactions. To borrow from a famous quote, reports of BSBY presenting inverted pyramid concerns have been greatly exaggerated.
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Bloomberg ($) – Marcus Ashworth | 6/28/2023
A seminal event occurs at the end of this week: Dollar Libor will finally die. The big question is does its replacement, the Secured Overnight Financing Rate, make the global financial system safer, or just exposed to different risks?
BW Take: While revisiting the familiar shortcomings of SOFR, the key point made in this article is one that will continue to reverberate post June 30th: “The advantage of Libor was that it had multiple time-reference points stretching out to a year. A benchmark referenced solely to an overnight rate may not help the monetary system withstand stresses in times of illiquidity.”
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Risk.net ($) – Helen Bartholomew | 6/28/2023
A pair of UK academics have published a new methodology for building a euro-denominated credit-sensitive interest rate benchmark that could be used as a fallback for Euribor in cash and derivatives contracts.
BW Take: While Euribor has no confirmed cessation date, a Euro-AXI credit sensitive complex, supports the idea that a well-conceived credit sensitive index backed by significant, tangible transaction volume results in a benchmark with a forward-looking term structure whose underlying data aligns with bank funding costs. Obvious solutions for obvious challenges.
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as of 18-Mar-2022
CME Eris BSBY Launch
April 10, 2022
(Subject to Regulatory Review)
Benchmark Rate News Newsletter
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. Read More ≫
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. Read More ≫ Share on LinkedIn
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. Read More ≫
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 Read More ≫
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. Read More ≫
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. Read More ≫