Not the end of the world!

If you read this, it means that the world has not ended!

Good to know the world can exist without LIBOR.

Actually some GBP-LIBOR fixing will still be published to the end of March 2024 and some USD-LIBOR will still be published to the end of September 2024 due to FCA use of “Article 23A benchmarks”. Maybe I penciled the wrong “end of the world date” in my calendar!

New “real” LIBOR (by opposition to the one invented by FCA) fixings are not published anymore, but old fixings still exists. We can see almost 10 trillions of it in the LCH data of Outstanding IRS.

In number for 30 June 2023 on USD 3-month tenor:

  • LIBOR fixing 5.54543
  • CME SOFR Term Rate: 5.26936
  • ISDA Spread: 0.26161
  • “Synthetic” LIBOR: 5.54543

There is a 1.546 bps gap somewhere! Where would that be? According to market rumours, both LIBOR and CME SOFR Term Rate are representative market rate as of 30 June 2023. We can only conclude that ISDA Spread is not a representative market rate. Why it will be used from Monday onward for many tens of trillions of LIBOR products for which it was not designed is beyond me.

I would have expected that the FCA, in charge of protecting consumers, would have forbidden the use of such a rate. But the fact that the same FCA has made the synthetic rate mandatory through Article 29A has maybe created a conflict of interest at the consumers’s expense.

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