Best support for risk-free rates: Bloomberg

Best support for risk-free rates: Bloomberg

Bloomberg has been awarded Best support for risk-free rates at the 2023 Risk Markets Technology Awards. The award recognises Bloomberg’s comprehensive and seamless solution for pricing and risk analytics in the transition from Libor to alternative reference rates (ARRs). 

With the transition of sterling, the Japanese yen and the Swiss franc markets from Libor to risk-free rates (RFRs) at the end of 2021, there was huge demand for tools to help firms transition smoothly. This trend will continue until June 30, 2023, when USD Libor rates will become non-representative, along with other rates worldwide that rely on them. 

To address this need, Bloomberg has introduced RFR volatility cubes for the secured overnight financing rate, the sterling overnight index average, the Tokyo overnight average, the Swiss average rate overnight, the Thai baht interest rate fixing and the Singapore overnight rate average, which are calibrated to the Bloomberg Volatility datasets. Additionally, enhancements were made to Bloomberg’s Swaps Manager and Derivatives Library to support RFRs, allowing customers to value RFR-based vanilla options and structured products. 

Bloomberg has a dedicated product that helps clients evaluate the impact of fallbacks on their securities portfolios. 

Furthermore, Bloomberg has developed and implemented a wide range of support for new and existing RFR products, and has improved their curves and datasets to allow seamless transition to RFRs. It has also developed a point-in-time capability for its curves to migrate off less-liquid Libor-based datasets while still preserving historical valuations and analysis. 

Bloomberg has also supported RFRs across non-Libor jurisdictions such as the Turkish lira overnight reference rate, the Denmark short-term rate and the Swedish krona short-term rate. Bloomberg’s solutions are designed to scale across currencies and products, and to minimise the incremental costs associated with the transition as it spreads to other currencies.

A major challenge facing smaller institutions and US regional banks is that they may not have fully considered the impact of the USD Libor transition on their operations and systems. Bloomberg is working with these firms to prepare for the end of June 2023 deadline and is focused on ensuring customer migration to RFRs is as seamless as possible, allowing them to largely continue their previous Libor-based workflows in the RFR space.

Bloomberg’s extensive offering includes analysis of RFRs on individual securities, pricing and risk management tools for RFR- and ARR-based swaps and options, and electronic trading in overnight index swaps and ARR-based swaps. On the Bloomberg Terminal, live interest rate yield curves for RFRs are integrated with structuring and pricing analytics to enable support for the pricing of derivatives.

Judges said:

  • “Bloomberg has shown itself to be aiding transition as well as business as usual.”
  • “The fallback language analysis for 196,000 individual securities is important work.” 
Ben Bullock, Bloomberg

Ben Bullock, interest rate derivatives product manager at Bloomberg, says:

“Over the past years Bloomberg has developed tools, analytics and solutions that support the transition to RFRs. Each client’s needs are unique, and our focus is on providing transparency and optionality as they continue to adopt RFRs. As the end of June 2023 deadline approaches, we are sourcing best practices from our global client base, and combining our analytics and portfolio solutions to allow our customers to continue business as usual under the new RFR regime.”

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