FRONT STORY SSA
EBRD snubs Sonia to keep Libor alive
Investor feedback prompts bank to turn back on alternative reference rate
The EUROPEAN BANK FOR RECONSTRUCTION AND
DEVELOPMENT on Wednesday shunned a
promised new dawn of Sonia-linked sterling
mOATING
RATEûNOTES ûASûOVERWHELMINGû
INVESTORûDEMANDûLEDûTHEûISSUERûTOûTIEûITSû
latest issue to the tried-and-tested Libor
reference rate.
The EBRD placed a £450m FRN due July
ûATûTHREE
MONTHû,IBORûPLUSûBP ûINûLINEû
with IPTs.
"UTûTHEûNATUREûOFûTHEûTRADEûPROVOKEDû
DEBATEûAMONGûMARKETûPARTICIPANTS ûGIVENû
THATûTHEû%UROPEANû)NVESTMENTû"ANKû
HERALDEDûAûaBNûmOATERûINû*UNE ûLINKEDûTOû
THEûSTERLINGûOVERNIGHTûINDEXûAVERAGE ûASûTHEû
start of a post-Libor world.
“The EBRD tend to be at the forefront of
INNOVATION ûANDûTHISûISûTHEûTHINGûMOSTûFOLKSû
AREûTALKINGûABOUT vûSAIDûAûBANKERûAWAYûh!LLû
HAVEûACKNOWLEDGEDû3ONIAûWILLûBEûTHEûRISK
FREEû
REFERENCEû4HISûDOESûMOREûHARMûTHANûGOODv
,IBOR ûTHEûSTANDARDûREFERENCEûRATEûUSEDûTOû
PRICEû53TRNûOFûlNANCIALûCONTRACTS ûWILLû
be phased out completely by the end of
ûAFTERûTHEûINDEXûWASûUNDERMINEDûBYûAû
rigging scandal.
3ONIAûISûSETûTOûDEVELOPûINTOûTHEû
BENCHMARKûREFERENCEûRATEûINûBOND ûLOANûANDû
DERIVATIVESûMARKETS
But the EBRD robustly defended the
DECISIONûTOûSTICKûWITHû,IBOR ûSAYINGûTHATû
3ONIAûCOULDûPROVEûAûMAJORûHEADACHEûFORû
INVESTORSûWHOûNEEDûTOûLOOKûATûTERMûRATESû
RATHERûTHANûAûCOMPOUNDEDûOVERNIGHTûRATE
)SABELLEû,AURENT ûHEADûOFûFUNDINGûATû%"2$ û
said there had been little interest on show
FORûAû3ONIA
LINKEDûPRODUCT ûWITHûTHEû
reference rate either not signed off for
INVESTORSûASûANûAPPROVEDûPRODUCTûORûNOTû
compatible with the systems of many
accounts.
“EIB’s Sonia-linked bond was good and
IMPORTANT ûESPECIALLYûFROMûAûSIGNALLINGû
PERSPECTIVE ûBUTûWEûHADûNINEûBANKSûPITCHINGû
,IBORûANDûNONEûPITCHINGû3ONIA ûDESPITEûTHEû
fact that we asked them about demand for
3ONIA vûSAIDû,AURENT
The deal announcement was
accompanied by fallback language and risk
warnings which highlighted that Libor will
be phased out in its entirety by the end of
ûBEFOREûTHEûlVE
YEARûDEALûMATURESû4HATûwas deemed preferable to the use of a
COMPOUNDEDûOVERNIGHTûRATE ûWHICHû,AURENTû
SAIDûISûANûIMPERFECTûSOLUTIONûFORûINVESTORû
needs.
h-ANYû;INVESTORS=ûCANTûMANAGEûASSETSûANDû
liabilities that are structured so that they
will only know a couple of days before the
PAYMENTûISûDUEûWHATûTHEûPAYMENTûIS vûSAIDû
Laurent.
h4HEYûLIKEûTOûKNOWûTHREEûORûSIXûMONTHSûINû
ADVANCEûWHATûTHEYûAREûGOINGûTOûPAYûORûWILLû
RECEIVE ûSOûTHEûDEVELOPMENTûOFûTERMûRATESû
LINKEDûTOû3ONIAûWILLûBEûIMPORTANTûFORûTHEMv
"OOKSûCLOSEDûABOVEûaM ûANDûAûLEADû
POINTEDûTOûTHEûORDERS ûANDûAûTRADEûWHICHûWASû
UPSIZEDûFROMûaM ûASûAûREmECTIONûOFû
continued Libor demand.
“The EIB trade was groundbreaking and
3ONIAûDEMANDûWASûEVIDENT ûBUTûDEMANDûFORû
,IBORûISûALSOûSTILLûVERYûMUCHûTHERE vûSAIDûTHEû
lead. “It’s not as simple as snapping your
lNGERSûANDûSWITCHINGûREFERENCEûRATEû.ORûAREû
PEOPLEûBEINGûCOMPLACENT ûITûJUSTûTAKESûAûLOTû
OFûWORKv
Barclays ûNomura and Scotiabank were leads.
Robert HoggFannie Mae gives SOFR a boost
Debut trade could serve as post-Libor template
FANNIE MAE on Thursday said it had priced the
lRSTûEVERûmOATING
RATEûSENIORûUNSECUREDûDEBTû
USINGûTHEûNEWLYûCREATEDû3ECUREDû/VERNIGHTû
Financing Rate (SOFR) as a benchmark.
4HEû53BNûTHREE
PARTûTRADE ûBECAUSEûOFû
ITSûSIZEûANDûEXECUTION ûISûEXPECTEDûTOûGIVEû
serious impetus to the ongoing race to
REPLACEû,IBOR ûWHICHûISûSCHEDULEDûTOûCEASEûTOû
EXISTûFROMû
3/&2ûHASûONLYûBEENûQUOTEDûSINCEû!PRILû û
but it is being touted by US regulators as the
BESTûALTERNATIVEûTOûREPLACEû,IBOR ûWHICHûISû
being terminated after being linked to a
string of trader manipulation scandals in the
banking industry.
53û&EDERALû2ESERVEû'OVERNORû2ANDALû
Quarles said earlier this month that daily
transactions underlying SOFR futures - at
OVERû53BNû
ûWEREûALREADYûMOREûTHANû
those underpinning Libor.
The benchmark has still not become
MAINSTREAMûFORûCASHûPRODUCTS ûBUTûINûRECENTû
weeks the Fed’s promotions and statistics
DEPICTINGûITSûLIQUIDITYûHAVEûSTARTEDûTOû
increase its use.
#HICAGOû-ERCANTILEû%XCHANGEûINTRODUCEDû
THREE
MONTHûANDûONE
MONTHû3/&2ûFUTURES û
while clearinghouse LCH said in mid-July
THATûITûHADûCLEAREDûTHEûlRSTûDOLLARûINTERESTû
rate swaps referencing SOFR.
#REDITû3UISSE û'OLDMANû3ACHSûANDû*0û
-ORGANûWEREûAMONGûTHEûlRSTûPARTICIPANTSûTOû
CLEARûSWAPSûUSINGûTHEûRATE ûITûSAID
!NDûONû4HURSDAY û&ANNIEû-AE ûWHICHûISûPARTûOFû
THEû&EDSû!LTERNATIVEû2EFERENCEû2ATESûCOMMITTEEû
THATûBACKEDû3/&2 ûGAVEûTHEû,IBORûREPLACEMENTû
process another boost by raising US$6bn selling
SIX ûûANDû
MONTHûUNSECUREDûNOTES
&ANNIEûPRICEDû53BNûOFûSIX
MONTHûDEBTû
ATû3/&2ûPLUSûBP û53BNûOFû
MONTHûNOTESûATûPLUSûBPûANDû53BNûOFû
MONTHû
notes at plus 16bp. Barclays ûNomura and TD
were lead managers.
4HEûBONDSûRECEIVEDûBROADûINTERESTûFROMû
INVESTORSûACROSSûTHEûBOARD ûDEMONSTRATINGûAû
growing depth of appetite for the new benchmark.
4RADINGûINûTHESEûSECURITIESûISûALSOûEXPECTEDû
to bring more focus to SOFR-based products
and help in its acceptance.
Corporate bonds are still using Libor as a
BENCHMARKûFORûTHEIRûmOATING
RATEûNOTES ûBUTû
that could change in time once a term structure
WASûESTABLISHEDûFORû3/&2 ûSAIDûONEûANALYST
“SOFR’s increased acceptance in a short
PERIODûOFûTIMEûISûVERYûENCOURAGINGûANDû
should speed up the process of creating a
TERMûSTRUCTUREûBASEDûONûTHEûOVERNIGHTûRATE û
which is critical to ensure its use in the
CORPORATEûBONDûMARKETv
Shankar RamakrishnanBONDS
SSAR 25 Corporates FIG 30 High-Yield 34 Structured Finance 36