How hedge funds lost big on US dollar Libor delay

Sharp narrowing of fallback spreads may have caused up to $2 billion of losses

A popular hedge fund bet on the US dollar Libor transition remaining on schedule came apart last week after Ice Benchmark Administration all but confirmed a delay until mid-2023.

The head of US rates at one large bank estimates several fixed income hedge funds and some dealers lost “anywhere from $500 million to $2 billion” on basis trades designed to profit from spreads widening ahead of US dollar Libor’s expected demise.

A rates trader at a European bank confirms the bets had gone badly