Global Derivatives Cling to Libor Even as Its Retirement Nears
William Shaw and Alex Harris, 14 April 2021
Anyone hoping Libor’s death notice would accelerate the shift of hundreds of trillions of dollars worth of derivatives toward replacement benchmarks will be sorely disappointed.
In the U.S, just 4.7% of contracts traded in March were pegged to the Secured Overnight Financing Rate, or SOFR, the benchmark slated to replace the London interbank offered rate, according to data from the International Swaps and Derivatives Association released Wednesday. That’s down from 5% in February.
It’s a similar story in Japan, where 2.4% of activity was pegged to replacement rate TONA, the Tokyo overnight average rate, compared with 3.5% a month prior. Even in the U.K., where progress has been much more advanced, trading volumes linked to the Sterling Overnight Index Average, or Sonia, slipped to 45%, down from 46% the previous month.
In all these markets, most, if not all of the remaining activity is still linked to the London interbank offered rate. That’s even though global regulators confirmed last month that the final fixings for most rates tracking the benchmark will take place at end of this year. The key U.S. tenors will live on until mid-2023.
