Japan’s Libor-linked structured products face basis menace

Lack of readiness for compounded rates could sweep repacks onto synthetic Libor, creating swaps mismatch

Hordes of structured products linked to Japanese yen Libor could end up in the so-called tough legacy camp if parties fail to negotiate suitable fallbacks in the coming weeks – an outcome that would see the instruments mopped up by a synthetic version of the outgoing benchmark and expose arranger banks to hefty basis risks.

Contractual fallbacks for popular products such as repackaged bonds may prove challenging to negotiate, participants say. The instruments, which use swaps to generate