US markets fret over ‘unrepresentative’ fallbacks

Two-year gap between spread fixing and cessation leaves fallback signatories tied to outdated basis

Fallback-divergence montage

The extended timetable for US dollar Libor’s demise may have thrown a lifeline to firms scrambling to move safely off the doomed benchmark, but it is also causing agitation among some participants. Across cash and derivatives markets, many fear they will be locked into unrepresentative fallback rates that were crystallised more than two years before taking effect.

So-called hardwired fallbacks, which automatically re-hitch contracts to the secured overnight financing rate (SOFR), incorporate a

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