As the deadline for LIBOR cessation in GBP, CHF, JPY and EUR fast approaches we thought we would break our normal cycle of quarterly reviews and assess how much progress has been made in Q4 2021 so far.
Our previous IBOR transition reviews are available here; Q3 2021, Q2 2021 and Q1 2021.
OSTTRA, through its post trade processing service MarkitWire, has been facilitating the migration of legacy cleared portfolios from IBORs to RFRs. MarkitWire has processed over 700,000 trade sides for more than 100 counterparties over several months, including, most recently, over 500,000 trades across the weekend of 4th December as part of the CHF, EUR, JPY CCP LIBOR conversion events. The next major event is the GBP LIBOR conversion event which is set for the weekend of 17th December.
In addition, OSTTRA’s triReduce service has been compressing legacy IBORs as part of its compression service. So far this year, triReduce has compressed almost $55 trillion of notional, for almost 70 entities in the three December 2021 LIBOR cessation currencies GBP, JPY, CHF. Including USD-LIBOR, and dependent currency indices, triReduce compression reached almost $150 trillion of notional, for almost 100 entities in the LIBOR cessation currencies year to date.
OSTTRA has assessed the data processed by our MarkitWire platform to evaluate the progress during Q4 of interbank offered rate (IBOR) transition for the $355 trillion single currency interest rate swaps (IRS) market. 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).
How has the market share of RFRs evolved since the start of 2020?
GBP Swaps
Background: Reformed SONIA will replace LIBOR which will cease publication on 31 December, 2021.
Reformed SONIA makes up almost 80% of new trades executed. However, this has barely changed since August…
….and over 90% of the notional traded.
EUR Swaps
Background: 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. 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 31st December, 2021 but it is not traded in the swaps market, there have been <10 trades a month for many years.
EuroSTR has jumped from 4.5% of EUR swaps executed in September, to 15% in November. As EONIA fell from 12% to 0%. Remember EuroSTR was just 2.8% in June 2021!
… and approximately a quarter of notional traded, up from 7% in September!
USD Swaps
Background: SOFR will replace Fed Funds and USD-LIBOR, although the ARRC have recently approved a Term-SOFR whose adoption will be interesting to watch… There was an initial uptick in SOFR at the end of October 2020 driven by the CCPs switching from Fed Funds to SOFR discounting on 16th October 2020. Unlike the other LIBORs, it is expected USD-LIBOR will continue to be published until June 30, 2023, albeit “SOFR first” applied to interdealer swaps from 26th July 2021.
SOFR has continued its charge, with the SOFR first initiative driving SOFR up to 26% of USD swaps executed in November, versus 17% in September, and up some eightfold from 3% in June. BSBY swaps have traded every month since September but remain <0.01%!
… and approximately 30% of notional