The Market Transition Away From LIBOR

A broad range of market participants from regulators to investors are preparing for the end of the London Interbank Offered Rate (“LIBOR”) as a benchmark for trillions of dollars of financial instruments.

The transition away from LIBOR is a global event impacting all aspects of financial markets (e.g. investments, operations, technology, legal and regulatory) and PIMCO aims to arm clients with the tools and information necessary to navigate these changes.

What is LIBOR?

LIBOR is widely used as a floating-rate benchmark index, as a reference rate for a wide range of securities and derivatives worldwide, and also as a signal for market liquidity and changes in financial conditions.

It is estimated that $200 trillion of financial contracts and securities are tied to USD LIBOR according to the Securities Industry and Financial Markets Association.¹

Why is the market transitioning?

Concerns regarding the reliability of LIBOR in the wake of bank manipulation of the rate in 2012 prompted regulators to develop alternative “risk-free benchmark” rates supported by more liquid and observable markets.

PIMCO’s base case assumption is that LIBOR publication will cease at the end of 2021.

How is PIMCO responding?

PIMCO is working closely with investors and regulators to navigate this transition. PIMCO is a participant in official sector working groups and will continue to provide input to establish and transition to alternative rates to LIBOR.

What are the replacement rates?

The Federal Reserve System established the Alternative Reference Rates Committee (“ARRC”) to lead the transition away from LIBOR. The ARRC selected the Secured Overnight Funding Rate (“SOFR”) as the recommended alternative reference rate for the U.S.

Similarly, working groups outside of the U.S. have nominated alternative reference rates in their funding currencies.

Sterling: SONIA

Swiss Franc: SARON

Japanese Yen: TONA

Euro: €STR

Explore frequently asked questions on LIBOR here.