Libor Shift Advances in Asia as New Swap Traded in Hong Kong

The global transition away from the discredited London interbank offered rate took another step forward in Asia with the first swap of its kind.

Standard Chartered Bank and International Finance Corp. traded Hong Kong’s first U.S. dollar and offshore yuan cross currency basis swap referencing the Loan Prime Rate (LPR) and Libor, according to an emailed statement from Standard Chartered Monday.

China introduced the LPR in 2019, a yardstick meant to peg the cost of borrowing by firms and households more closely to the rates that banks pay for cash in money markets. Global regulators are driving the shift to alternative risk-free rates to replace Libor, which was tainted by a rate-rigging scandal but still underpins hundreds of trillions of dollars worth of financial assets.

The Hong Kong Monetary Authority pushed back a target in late March for banks to phase out certain products tied to Libor to the end of this year from the end of June. Hong Kong’s latest schedule will align the city with the U.S. where authorities have asked banks to stop entering U.S. dollar Libor contracts after the end of 2021, as global regulators drive a shift towards alternative risk-free rates.

The cross-currency swap, which references one-year yuan LPR and six-month dollar Libor, will allow IFC to offer local-currency lending in China in support of the LPR index, the statement said.

©2021 Bloomberg L.P.

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