Libor Risk – Quarterly report Q4 2020

Exactly when Libor’s regulator will sign the official death warrant for the most popular US dollar settings is now a cause of huge uncertainty. It’s also a matter of huge significance. 

An 18-month stay of execution – which will see five dollar tenors disappear after June 2023  – means the UK’s Financial Conduct Authority could delay the announcement on those fixings until mid-2022. On the other hand, it could call time on all five Libor currencies together – likely after January 25, 2021, when fallbacks devised by the International Swaps and Derivatives Association become effective.

In simple terms, an early announcement is more likely to deliver a bigger fallback adjustment than a later one. The debate is far from settled, but swap holders paying the floating leg on dollar instruments probably shouldn’t rest too much hope on a late – and economically beneficial – call. 

 

Download the full special report in PDF format

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