Early Market Reception to Risk-Free Rates

Early Market Reception to Risk-Free Rates

Keith Mullin

35 years: Capital markets editorial

Keith highlights the intended transition from LIBOR to SOFR, an alternative risk-free rate. However, associated with this transition is a wide range of reluctance and objections, many of which are discussed within the video. Some of which include - uncertainties regarding how the new rate will work overtime and arguments from mid-sized US banks about the 'one size fits all' approach.

Keith highlights the intended transition from LIBOR to SOFR, an alternative risk-free rate. However, associated with this transition is a wide range of reluctance and objections, many of which are discussed within the video. Some of which include - uncertainties regarding how the new rate will work overtime and arguments from mid-sized US banks about the 'one size fits all' approach.

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Early Market Reception to Risk-Free Rates

16 mins 33 secs

Overview

Capital markets activity linked to the Secured Overnight Financing Rate (SOFR), the US risk-free rate (RFR) chosen to replace Libor, has evolved ahead of RFR activity in other jurisdictions. But transition has been dogged by inertia and a certain amount of reluctance from market participants. Uncertainties abound with regard to operational aspects of transition and how RFRs will work over time. Debt issuance linked to or referencing RFRs should pick up as issuers, trade bodies and service providers issue an array of debt, launch new tools and products and inaugurate new structures.

Key learning objectives:

  • What are some of the factors slowing the switch to risk-free rates?

  • What were the objections to SOFR expressed by a group of mid-sized US banks in February 2020?

  • Which factors will help issuance of debt, issuance linked to RFRs or referencing RFRs?

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