Marc Henrard - Multi-curve framework

Interesting article in Risk.Net on "making money on LIBOR fallback". The title of this blog is the title of the Risk article published on 19 June 2019 (subscription required).  The title between inverted comma above is the title of my series of blogs on the same subject, the first of which was published on 30 November 2018 . The Risk article was in part inspired by my blogs, as you can see from the references to the figures I computed and the link to a recent muRisQ blog on the flatness of the GBP LIBOR-3M/SONIA curve .

A couple of weeks ago, I reported a manipulation of SOFR by the Fed . I have now to report an "incident" of unknown nature. The SOFR (and Effective Fed Fund Rate) data is not accessible anymore on the Fed website. But at the same time the data is still available in Bloomberg. Does that means that the results of public service work (the Statistics computed by the Fed) are not anymore a public good but can be accessed only through private services requiring a payment to a private company? It will be interesting to hear the explanation about this problem. I have not heard any explanation for  the "feed" problem of last month end. What actually happened? What would have been the SOFR fixing if the actual data had been used (and not a survey)? Edit Monday 24-Jun-2014: The page is up and running again. To my knowledge, there was no explanation why it was down yesterday. I will now be able to update my SOFR analysis...

More than one year after my initial explicit question about the achievability of one of the fallbacks proposed by ISDA, ISDA has finally acknowledge that is is unclear if the compounding setting in arrears proposed will be workable. I have to add a little bit of context around that statement. During the 19 June 2019 webcast by ISDA about the consultations in progress , a certain number of questions from the audience were answered. One of those questions was " How will the fallback apply to IBOR in-arrears swaps? " (at 52:30) Unfortunately I don't have the name of the person who asked the question (and so I cannot acknowledge its source), but I want to thank him/her to have asked the question and congratulate him to have obtained an answer. I have not been able to obtain such an answer since I asked the question more than one year ago. In its answer, ISDA acknowledges that " That does remain an open issue and will remain an issue after the consultation closes " ...

It appears that the overnight-based term rates gain more and more supporters. They are already the first step in the fallback language recommended by ARRC for loan, bonds, and secularization. The term rate solution for fallback was also discussed in an ECB-led consultation on fallback. The majority of the respondents believed that such a term-rate benchmark is not only feasible, but " essential " or " desirable ". I discussed it in my blog " Fallbacks consultations: No clash in the answers; clash in questions! " It appears that the "Federal Reserve’s ARRC representative wrote and requested that ISDA consider a forward-looking rate in its consultation". (1) The consultation started some weeks ago and extend to 12 July 2019. A recent Risk article, FCA: Sonia derivatives liquid enough to create term rates , quotes Andrew Bailey, the FCA CEO, speaking at a panel session held at the Bank of England. "I think we do need [a term rate] but...

It is now official, SOFR is manipulated by the Federal Reserve Bank of New York. To avoid any misunderstanding, I have to repeat the first meaning of manipulate, which, according to the Oxford dictionary, is "handle or control in a skillful manner". On 31 May, the Federal Reserve Bank of New York has decided not to use the actual trade data to compute SOFR but the "rate was calculated using survey data" as indicated on the Fed SOFR's site reproduced below. This certainly proves that the Fed "controls" the figure as it can decide how it is computed from its own authority. And who I'm to think of disputing that the Fed is skillful. Their actions are perfectly in line with the definition of manipulation provided above: control in a skillful manner. Update 7-Jun-2019: An article was published on 6-Jun-2019 in risk magazine about the issue: A mystery: why did the NY Fed use a survey to get SOFR? (subscription required). The only indicatio...

The Rubicon has been crossed, the death sentence is set to be executed on 2 October 2019. EMMI has decided that EONIA will die on 2 October 2019 with its body occupied by ESTER from then up to end of 2021. To fill the old body that is a little bit larger than the new occupant, it will be padded with some spread. The spread has also already been decided; it will not be adapted to the actual size of both bodies in October. Obviously you need 4 months to compute an average and it would not have been imaginable to have a custom made padding/spread in less than this period. The spread will be 8.5 bps as computed by the ECB. Now that the death date of EONIA is decided and the spread is decided, trading derivatives on EONIA beyond 2 October 2019 is trading derivatives on a derivative of ESTER; by transitivity of derivatives it is trading a derivative on ESTER. Why are users not trading already directly ESTER (forward starting) derivatives? Why are the CCPs not already accepting ESTER-linked ...

There was quite a lot of activity on the fallback side in the last weeks. Two new consultations by ISDA A new dirivatiViews from ISDA: Another Step to Benchmark Fallbacks ARRC announcement on recommended fallback language for bilateral business loans Closing Keynote at the Bloomberg-ISDA Benchmark Conference: Benchmark Regulation and Migration The deadline for the answers to the consultations is 12 July 2019. I encourage all to answer to the questions and to request all the required details about the important wording of the fallback that are still missing. Like for previous consultations, I plan to answer and will publish my answers when they are ready. In the mean time, I have a couple of comments on the derivatiViews informal comments by ISDA's O'Malia. In particular two elements attracted my attention: "That doesn’t mean the adjusted RFR will exactly match the relevant IBOR – it won’t, so there will be winners and losers. That’s another reason to act ear...