This morning the Bank of England published a statement that restates the position that firms should not rely on LIBOR after the end of 2021, whilst acknowledging the pressures the Coronavirus crisis will place on short term transition targets.
Over the last few days there has been some talk in the industry about the potential impact of the crisis on LIBOR plans - while the BoE statement is light on detail on exactly what might give short term, the main message coming across loud and clear is to keep planning for the end of LIBOR as before.
The Q3 2020 end to writing new £ LIBOR loans & bonds is the milestone many people are focusing their attention on and while it would seem sensible to allow this to move to the right, we have to consider what this means for transition if the end of 2021 is unmoved.
Does this just mean collectively we need to up the activity and urgency on delivery plans once things return to (or closer to) normal?
There are tasks that can still be worked on and remain critical such as the consultation responses. For us, the ISDA pre-cessation consultation remains top of the list especially noting the clearing house plans to act once LIBOR is deemed unrepresentative. We also note the cash market fallback aligning to derivative market with details being shared only yesterday.
There is a risk that some might wish to revisit the fallback methodology in the light of recent market volatility....some could argue for a longer lookback period vs some credit element in the calculation, but given how long it has taken to get here, we think more likely this will be left as is.
The tough legacy task force is still aiming to complete their work noting how far it has got. Does this work become even more important if interim deadlines are moved out while end of 2021 remains?
While the clarity on sticking to the end date will be welcome news for many it does leave further questions that the RFR group will naturally look to address and work through. Of course global coordination will also be crucial.
More to come and we look forward to discussing your views on how this will play out.
Phil Lloyd, NWM Sales
Please click here to find all of NatWest Markets’ Strategy and Sales commentary/ideas.
This is Non-Independent Research, as defined by the Financial Conduct Authority. Not intended for Retail Client distribution. This material should be regarded as a marketing communication and may have been produced in conjunction with the NatWest Markets Plc trading desks that trade as principal in the instruments mentioned herein. All data is accurate as of the report date, unless otherwise specified.
This communication has been prepared by NatWest Markets Plc, and should be regarded as a Marketing Communication, for which the relevant competent authority is the UK Financial Conduct Authority.
Please follow the link for the following information https://www.natwestmarkets.com/natwest-markets/regulation/mar-disclosures.html
- MAR Disclaimer
- Conflicts of Interest statement
- Glossary of definitions
- Historic Trade ideas log
Where communicated in Singapore, this communication may be deemed an advertisement. This advertisement has not been reviewed by the Monetary Authority of Singapore.