As the deadline for LIBOR cessation in GBP, CHF, JPY, and EUR passed in December 2021 we thought we would take a look at the data to get the latest picture of global IBOR reform as of Q1 2022.
Our previous IBOR transition reviews are available here: Q4 2021, Q3 2021, Q2 2021 and Q1 2021.
OSTTRA through its post trade processing service MarkitWire facilitated the migration of legacy cleared portfolios from IBORs to RFRs in CHF, EUR, GBP and JPY as part of the CCP LIBOR conversion events. MarkitWire processed over 1,000,000 trade sides for over 100 counterparties, through its CCP Synchronization service, over several months culminating in the final GBP run on December 17th. The industry is now busy preparing for the USD transition that will take place mid-2023. The OSTTRA team is already discussing this transition with impacted stakeholders and will be ready to support all events linked to the transition, including the highly anticipated transition dry runs.
In addition, OSTTRA’s triReduce service compressed legacy IBORs as part of its compression service. In Q1 2022, triReduce has compressed its largest amount of USD notional since 2018 reaching $32 trillion for over 50 entities which also includes dependant currency indices (SGD and THB).
OSTTRA has assessed the data processed by our MarkitWire platform to evaluate the progress 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 has replaced LIBOR which ceased publication on 31 December, 2021.
Here is how the story unfolded with 100% of single currency interest rate swaps executed in SONIA in 2022.
EUR Swaps
Background: EuroSTR (a.k.a. €STR) has replaced EONIA. 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 ceased publication on December 31, 2021 but hadn’t been materially traded in the swaps market for at least a decade.
EuroSTR has jumped to over 20% of EUR swaps executed. Much of this came from EONIA’s demise but EURIBOR has fallen from just under 90% to just under 80% over the past 6 months.
… and approximately 60% of notional traded.
USD Swaps
Background: SOFR will replace Fed Funds and USD-LIBOR, although the ARRC have 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, over 60% of new USD swaps executed in March 2022 referenced SOFR, continuing a month-by-month march forward. BSBY swaps, a credit sensitive rate, have traded every month since September but remain <0.1%.