Libor, SOFR, BSBY, benchmark rates


It is your own benchmark time for the financial markets.

Efforts to replace Libor – the interbank lending rate that sells trillions of dollars in financial assets at a famous price – continue for more than a decade after the financial crisis. And while SOFR (Secured Overnight Funding Rate) has emerged as the pioneer and preferred option of the Committee on Alternative Reference Rates, the battle for benchmark supremacy is far from over.

In fact, the number of alternative interest rates continues to multiply. Options available now include the Bloomberg Short Term Bank Yield Index (BSBY), the ICE Bank Yield Index (IBYI), and the Across-the-Curve Funding Index (AXI) as well Ameribor. There is a great irony in the race for alternative tariffs. While regulators want to move on to something that will avoid the weaknesses in the original rate, market participants have done their best to restore Libor as closely as possible, with credit-sensitive rates like BSBY, BYI and Ameribor tracking banks’ funding costs.

Read more: Libor replacements multiply in layers that could damage markets

There is now a clear possibility that the market will end up with a multitude of benchmarks rather than a dominant Libor substitute. A recent survey by TD Securities suggests this will become the base case. A considerable part of the respondents now expect a “multi-benchmark world”.

Source: TD Securities

Further information on the (lengthy) transition from Libor can be found in our Strange lots Series from last year.

Meet the man who whistled on LIBOR
This is the index intended to replace LIBOR
The case for AMERIBOR as a replacement for LIBOR
How the transition from LIBOR actually works
This happened to LIBOR during the COVID crisis

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