So Long, Libor: Transition Is Underway to SOFR and Other Alternative Reference Rates

It won’t be easy and key risks remain, but we believe the players and strategies are now in place to transition markets beyond Libor.

Investors and regulators worldwide are preparing for life after Libor. The predominant floating-rate benchmark index – which serves investors not only as a reference rate for a tremendous range of securities and derivatives worldwide but also as a signal for market liquidity and looming risks – may no longer be available in three years. The role it plays across global markets must then be taken up by one or more alternative reference rates. For American football enthusiasts, it’s akin to choosing and preparing a backup quarterback to take the leading role as a longtime veteran is about to retire.

The global banking community has agreed to continue to report Libor (which is short for London Interbank Offered Rate; the index is administered by the Intercontinental Exchange or ICE) until the end of 2021. Central banks and other public sector organizations are leading cooperative efforts with the private sector to identify alternative reference rates and develop transition plans.

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Jerome M. Schneider

Head of Short-Term Portfolio Management

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