Rates-Trading Rush Shows Libor Switch Isn’t Some Far-Off Concern

The shift away from London interbank offered rates may not be penciled in until the end of next year at the earliest, but U.S. rates traders on Wednesday showed it’s very much a current concern for markets.

A series of official announcements on Wednesday unleashed a flurry of trading in eurodollar futures, instruments that are tied to three-month dollar Libor.

The moves came after the publisher of the pivotal global benchmarks suggested that a decision on the fate of non-dollar Libors was imminent, and as U.K. regulators said specific rates might need to endure for the sake of legacy contracts or market integrity.

The move away from Libor -- and toward new alternatives such as the Secured Overnight Financing Rate -- is a response to concerns about the longstanding benchmark, including revelations about manipulation in the wake of the 2008 financial crisis. The challenge has been to maintain Libor’s accessibility and functionality with an alternative that’s more trustworthy.

ICE Benchmark Administration, which took over calculating Libor rates from the British Bankers Association in 2014, will “in the near future, consult on its intention” to stop publishing Libor rates for the pound, the euro, the Swiss franc and the yen after Dec. 31, 2021, it said in a statement Wednesday. The fate of dollar Libor rates remains under discussion, it said.

Concurrently, the U.K. Financial Conduct Authority said that under proposed legislation it might “require continued publication of critical benchmarks on the basis of a changed methodology in certain circumstances.” That probably would not be necessary for euro and Swiss franc rates, but might be necessary for others, it said.

To read more on ICE and FCA statements, click here.

Listed by CME Group Inc., eurodollar futures and options remain one of the world’s biggest financial products despite the regulatory offensive against Libor.

Much of the activity on Wednesday was centered around March 2022 futures, which could come into focus as a fallback contract around the transition, and how they might perform versus December 2021 and June 2022 instruments.

©2020 Bloomberg L.P.

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