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D-day for the rates market: solving the outstanding issues in US Libor transition

The panel

  • Liang Wu, Senior vice-president, financial engineering and product management, head of rates, Numerix
  • Gaurav Shukla, Partner, PwC
  • Katie Craig, Associate, US rates strategist, BofA Securities
  • Moderator: Helen Bartholomew, Editor-at-large, Risk.net

The next months will determine how rates markets cope with the death of Libor.

While take-up of the secured overnight financing rate (SOFR) has been progressing, a number of pain points remain. Narrow availability of term SOFR derivatives has raised the cost of hedging for many borrowers, and attempts to reverse an interdealer trading ban on the instruments have so far proved fruitless. Non-linear markets have lagged vanilla counterparts in their preparation as traders grapple with new volatility curves. Participants also have their work cut out for them as they prepare for trillions of dollars of legacy instruments to re-hitch to the risk-free rate via central counterparty conversions and bilateral fallbacks.

With transition efforts approaching D-day, Risk.net convened with experts to discuss the issues facing the market, the progress made so far and the outstanding issues facing the ‘new look’ rates market. This Risk.net webinar explores the latest challenges, from term SOFR to modelling and non-linear markets.

Key topics discussed:

  • The state of the union: examining the transition to a risk-free rate world, clearing-house conversions and Libor fallbacks

  • Outstanding issues market participants are facing in the closing stages of the Libor transition

  • Remaining uncertainties for term SOFR: pain points in the narrow use-case prospects for reversing an interdealer trading ban, managing the lack of price transparency, and the driving forces behind the term SOFR versus overnight basis

  • Opportunities, challenges and the latest developments in modelling volatility in SOFR

  • Techniques and tools for establishing the term SOFR volatility curve after Libor’s demise

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