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IHS Markit has assessed the data processed by IHS Markit's
MarkitWire platform to evaluate the progress of (interbank offered
rate) IBOR transition for single currency interest rate swaps
(IRS), analysing market share in; EUR, GBP, USD, JPY, CHF, AUD,
CAD, and SGD between legacy IBORs, legacy / continuing overnight
index swaps (OIS) and the new risk free rates (RFRs).
The FCA confirmed on March 5, 2021
that many of the existing London interbank offered rates (LIBORs)
will cease to be published at the end of 2021 with a small number
of rates continuing on a synthetic basis beyond that and USD-LIBOR
continuing to the end of June 2023 for a subset of tenors.
How has the market share of RFRs evolved since the start
of 2020?
GBP swaps
GBP is the poster child of the IBOR reform / transition
programme. The Reformed SONIA now makes up over half the number of
new trades executed…
…and over 60% of the notional traded.
However, GBP-LIBOR will cease publication on December 31, 2021
so there is still a way to go ahead of cessation. And so much of
the new IBOR transactions being executed matures post December 31,
2021, albeit some of this activity maybe offsetting legacy
risk…
That said SONIA is trading more at long dated tenors…
What GBP-LIBOR tenors (designated maturities) are still
trading?
EUR swaps
EuroSTR (a.k.a. €STR) will replace EONIA. There was an initial
uptick at the end of July 2020 driven by the CCPs switching from
EONIA to EuroSTR discounting on 25th July 2020. Since then, EuroSTR
has made very gradual further progress but still only makes up 2%
of volume traded. It is expected that EURIBOR will continue to be
published until at least 2025 but that there will be a material
migration to EuroSTR. EUR-LIBOR will cease publication on December
31, 2021 but EUR-LIBOR is not traded in the swaps market, there
have been <10 trades a month for many years and therefore
although it is included in the numbers it is excluded from these
graphs.
… and less than 5% of notional traded.
… and much of the new IBOR transactions being executed matures
post December 31, 2025…
That said EONIA is trading more at long dated tenors…
…as is EuroSTR …
What EURIBOR tenors (designated maturities) are still
trading?
USD swaps
SOFR will replace Fed Funds and USD-LIBOR. There was an initial
uptick at the end of October 2020 driven by the CCPs switching from
Fed Funds to SOFR discounting on 16th October 2020. Since then,
SOFR has made very gradual further progress but still only makes up
less than 2% of volume traded. Unlike the other LIBORs it is
expected USD-LIBOR will continue to be published until June 30,
2023.
… and approximately 3% of notional
… and much of the new IBOR transactions being executed matures
post December 31, 2023 …
That said Fed Funds is trading more at long dated tenors…
…as is SOFR …
What USD-LIBOR tenors (designated maturities) are still
trading?
JPY Swaps
Japan is taking a multiple rate approach. DTIBOR is expected to
continue alongside TONA. ZTIBOR is planned to be discontinued 2
years after LIBOR cessation. There has been little change over the
last 15 months. JPY-LIBOR will cease publication on December 31,
2021 but LIBOR remains >95% of all JPY swaps volumes with TONA,
DTIBOR and ZTIBOR making up approximately 2%, 2% and 1% of traded
volumes respectively.
CHF Swaps
There had been little change until the start of 2021. CHF-LIBOR
will cease publication on December 31, 2021 but LIBOR remains
approximately 90% of all CHF swaps volumes.
CAD Swaps
Canada is taking a multiple rate approach. Reformed/enhanced
CORRA will continue alongside CDOR.
AUD Swaps
Australia is taking a multiple rate approach. The reformed BBSW
is expected to continue alongside AONIA. Activity in AONIA has been
very subdued over the last 12 months.
SGD Swaps
Singapore initially took a multiple rate approach. However, the
reform of SIBOR to base it more on transaction data failed and will
cease in 2024. SOR is expected to be replaced by SORA. March 2021
saw the first noticeable uptick in SORA volumes with it share of
the SGD market doubling from 1.5% to just over 3%.
Conclusion
The FCA and other regulators are clear, LIBOR and many other
IBORs will become a Woolly Mammoth. Progress on adoption of new
RFRs has certainly been made, particularly in SONIA. However, based
on March activity there is still plenty of new IBOR activity across
the curve. 93% of new GBP-LIBOR activity executed in March matures
in 2022 or later which is after the planned LIBOR cessation. There
is clearly still a way to go to see the new RFRs completely replace
the IBORs in global swaps trading.
Posted 28 April 2021 by Kirston Winters, Managing Director − MarkitSERV, IHS Markit
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