USD Swaps
Background: SOFR will replace Fed Funds and USD-LIBOR, although the ARRC has 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 16 October 2020. Unlike the other LIBORs it is expected USD-LIBOR will continue to be published until 30 June, 2023, albeit “SOFR first” applied to interdealer swaps from 26 July 2021.
SOFR has suddenly picked up with the SOFR first initiative driving SOFR up to 17% of USD swaps executed in September, up some sixfold from 3% in June. Interestingly we also saw the first handful of BSBY trades in September, one to watch.
… and approximately 12% of notional.
Adoption of SOFR on non-linear products like Swaptions have been less successful, due in part to the absence of a USD ICE SWAP RATE for SOFR. The USD SOFR ICE Swap Rate and USD SOFR Spread-Adjusted ICE SWAP Rate are currently in Beta. Full publication of these rates will certainly help the industry further adopt SOFR in place if LIBOR.
JPY Swaps
Background: Japan is taking a multiple rate approach. DTIBOR is expected to continue alongside TONA. ZTIBOR is expected to be discontinued at the end of December 2024, but the timing and the specifics as well as whether to cease ZTIBOR, will be finally determined through public consultation going forward. JPY-LIBOR will cease publication on 31 December, 2021.
TONA has had a dramatic uptick to 60% of JPY swaps executed in September, up some twelvefold from 4.5% in June.
CHF Swaps
Background: CHF-LIBOR will cease publication on 31 December, 2021.
SARON has had a significant uptick to almost two thirds of CHF swaps executed in September, more than doubling from less than 30% in June.
CAD Swaps
Background: Canada is taking a multiple rate approach. Reformed/enhanced CORRA will continue alongside CDOR.
There has been little change with CORRA continuing to make up less than 5% of CAD swaps executed.
AUD Swaps
Background: 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 but has suddenly increased to 5% of AUD swaps executed in September, up from 1% in June.
SGD Swaps
Background: 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.
Activity in SORA has been very subdued over the last 12 months but has suddenly increased to over 70% of SGD swaps executed in September, up from 15% in June and less than 5% in May.
Conclusion
The FCA and most other regulators are clear, LIBOR and many other IBORs will become extinct in the global swaps market. Progress on adoption of new RFRs has certainly been made, particularly in SONIA where over 75% of new trades are SONIA. Probably more interesting though is the sudden and sharp progress in JPY (TONA), CHF (SARON) and SGD (SORA) compared to the more tranquil growth in other RFRs. There is clearly still a way to go to see the new RFRs completely replace the IBORs in global swaps trading.
SONIA continues to lead the pack with almost 80% of new GBP swaps executed…
But the big story in Q3 2021 is the sudden and dramatic progress of:
- SORA now over 70% of SGD swaps
- SARON now almost two thirds of CHF swaps
- TONA now 60% of JPY swaps
- SOFR up to 17% of USD swaps.
There has even been some limited progress in:
- EuroSTR creeping up to 4.5% of EUR swaps
- AONIA suddenly increased to 5% of AUD swaps
- CORRA still less than 5% of CAD swaps.
What’s next?
More significant milestone dates approach as certain IBORs cease to exist, and clearing houses are mandatorily converting IBOR positions into a relevant RFRs. Watch this space…
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