JPY Swaps

Background: Japan is taking a multiple rate approach. TIBOR (a.k.a. DTIBOR) is expected to continue alongside TONA. Euroyen TIBOR (a.k.a. ZTIBOR) is planned to be discontinued 2 years after LIBOR cessation. JPY-LIBOR ceased publication on December 31, 2021.

TONA has continued its rise, with 95% of JPY swaps executed in Q1 2022 referencing TONA.

CHF Swaps

Background: CHF-LIBOR ceased publication on December 31, 2021.

Here is how the story unfolded with 100% of single currency interest rate swaps executed in SARON in 2022.

CAD Swaps

Background: Canada is taking a multiple rate approach. Reformed/enhanced CORRA will continue alongside CDOR.

CDOR continues to dominate swap volumes, but CORRA accounted for 8% of CAD swaps executed in the last 6 months. That is nearly triple its historic levels.

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 for quite some time but after picking up in the second half of 2021, it has grown to almost 10% in the last two months.

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.

SORA has continued its rise, with 98% of SGD swaps executed in March 2022 referencing SORA.

Conclusion

The FCA and most other regulators have been 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; SGD (SORA) [c.98%], GBP (SONIA) [100%], CHF (SARON) [100%], JPY (TONA) [c.95%] of new trades are traded on the new RFRs. Elsewhere, AUD (AONIA) [c.10%], CAD (CORRA) [8%], EUR (EuroSTR) [c.20%], and USD (SOFR) [c.60%]. So, while for some currencies the journey is complete, for others the journey continues.

Final thought
With this seismic shift in the products traded in the global OTC derivatives markets, it is reasonable to consider whether there has been any impact on market structure. Well, recently I was approached by a European regulator focussed on the benchmark transition asking when we would be publishing our next update on IBOR versus RFR volumes, (here it is!), and asked whether there is any difference in the trading location data between existing IBORs and the new RFRs. Well to find out the answer, read my piece on the Brexit impact on trading location: Global OTC IRS markets – Q1 2022 review.

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JPY Swaps

Background: 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. JPY-LIBOR will cease publication on 31st December, 2021.

TONA has continued its rise, now >70% of JPY swaps executed in November, from 60% in September, up some fifteenfold from 4.5% in June.

CHF Swaps

Background: CHF-LIBOR will cease publication on 31st December, 2021.

SARON has had a significant uptick to almost 80% of CHF swaps executed in November, up from 64% in September, almost trebling 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 in most months.

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 suddenly increased to 5% of AUD swaps executed in September, October and November, 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 had been very subdued over the last 12 months but having suddenly increased to over 70% of SGD swaps executed in September, it was over 90% in October and November. This was just 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; SGD (SORA) [>90%], GBP (SONIA) [>80%], CHF (SARON) [~80%], JPY (TONA) [>70%] of new trades are traded on the new RFRs. There is clearly still a way to go to see the new RFRs completely replace the IBORs in global swaps trading.

There has even been progress in:

• SOFR now >25% of USD swaps, driven by the SOFR first initiative
• EuroSTR now 15% of EUR swaps, as firms stopped trading EONIA

What’s next?
With more significant milestone dates approaching we expect to see further shifts in the OTC interest rates swaps landscape. We will be back in 2022…

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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

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%.

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%.