Marc Henrard - Multi-curve framework

Another overnight-linked futures. CME is planning to launch SONIA futures. The futures would come in two flavours: Quarterly IMM dates and MPC meeting dates. More details can be found on CME website at https://www.cmegroup.com/trading/interest-rates/sonia-futures.html . To my knowledge, this is the first time that a central bank meeting date futures is launched. The central bank meeting date futures is one of the options I had proposed in my design of overnight-linked futures. Other financial institutions issuing SOFR linked paper. Credit Suisse has issued a six-month certificate of deposit linked to SOFR. The paper pays SOFR+35bps. More details in the FT article " Credit Suisse becomes first bank to issue debt tied to Sofr "(subscription required). Barclays has issued commercial paper linked to SOFR. See the Bloomberg article " Libor Challenger Embraced in Debut Commercial Paper Transaction ".

A month ago, ISDA launched a consultation on IBOR fallbacks . The question of the fallback in case of a benchmark discontinuation has obviously legal background. Parties to the derivatives contracts have to ask themselves: What is the meaning of what I signed? Is it really what I want? The answer to the last question is probably: " no, it is not what I want! " This is why most of the derivatives users agree that a change in the fallback language is required. Once you are convinced that what you have is not what you want, you have to review the alternatives. I have published a note with a personal review of the alternatives from a " quant " perspective. Even if personally I would prefer to the called it a "qualitative analysis" as before assessing the quantities associated to the alternatives, you have to check their qualities against a set of qualitative criteria. The note gives some background for the Season 2 of Game of Benchmarks: The Questions! T

More and more SOFR-linked products appear. This time it is the World Bank which issued a SOFR-linked floating rate note (ISIN: US459058GK33), with a two-year maturity and a coupon of SOFR+22bps paid quarterly with a 4 days lockout. The notional issued was 1 billion notional. This is the longest maturity I have seen so far for a SOFR-linked instrument. Once more a lockout period which transforms a compounded setting in arrears into a partially setting in advance rate. The press release can be found here . It appears that on the same date very large SOFR v LIBOR swaps were traded. The total notional of the swaps was USD 920 millions. More details are provided in the Risk article World Bank completes first SOFR bond hedge .

Over the past couple of years, in parallel to my work as Head of Quantitative Research at OpenGamma ,  I have been working as a freelance advisor on a couple of projects. Those projects include designing of a new interest rate futures, presenting multiple executive training, advising hedge funds on the multi-curve and collateral framework, advising on CSA, Variation and Initial Margin frameworks and commenting on regulations. For those projects, I'm working under the structure of an independent advisory firm called mu Ris Q Advisory. Its (concise) website can be found at http://murisq.com/ Don't hesitate to contact me regarding its services or for training, model validation, product design and risk management strategies.

The following quotes are from a recent article in Risk titled " Esma: Eonia can be used in CSAs after 2020 ". Jakobus Feldkamp, senior policy officer for market integrity at the Paris-based European Securities and Markets Authority, tells Risk.net that CSAs will not be dragged into the BMR. “Esma agrees that it can be argued that a reference to Eonia in a bilateral agreement on an individual exchange of collateral under an OTC derivative is not strictly ‘use of a benchmark’ in the sense of the BMR,” says Feldkamp. The Article 3 (1) (7) of the European Benchmarks Regulation (BMR), refers to " determination of the amount payable under a financial instrument or a financial contract by referencing an index or a combination of indices ".  The regulation enters in full force on 1 January 2020. The question behind the interpretation of this sentence is to know if CSA referring to EONIA can still be legally used in Europe after that date. Not a minor issue certainly.

A floating rate note and a futures, this is what this week brings us on the SOFR front. Fannie Mae has launched SOFR-indexed notes. The issuance is described in a Risk article: Investors cheer debut Fannie SOFR note launch . Three notes with maturities of 6, 12 and 18 months are issues, with spread of 8, 12 and 16 basis points above compounded SOFR. The accrual periods ends with a four-day lock-out period, similar in some way to the two-day lock-out for the Fed Fund swaps. Once more this means that the debate between forward-looking term rates and compounding backward looking rates is wide open. In the same week, the Intercontinental Exchange has announced October 1 Launch of ICE One and Three Month SOFR Futures . This extends the ICE overnight offering beyond the SONIA futures for which 100 billions notional have been traded and competes with the similar products at CME .