The Monticello Consulting Group (L)IBOR Center of Excellence (COE) team conducted their monthly summit earlier this week. The team discussed the impact of the most recent regulatory guidelines and milestones across the various (L)IBOR benchmarks. One recurring theme of the conversation was the deviation in market adoption and banking institution momentum related to the various risk-free alternatives. Where SONIA and SARON have gained momentum in the market, it appears SOFR and ESTR are lagging behind. In addition, 2021 continues to see a market that strongly prefers a credit sensitive rate that reflects cost of funding, similar to what (L)IBOR rates offer.
The (L)IBOR COE team explored drivers for this dichotomy including the analysis of industry charts depicting the spreads of SOFR to USD LIBOR being far greater than the spreads of SONIA to GBP LIBOR and the causes for the variance in spread. In addition to how the spread from LIBOR may impact adoption, the group discussed jurisdictional risk-sensitive IBOR alternatives to the BBA published rates such as AMERIBOR. EURIBOR, and TIBOR that have been gaining favor.
As consultants, our ability to knowledge exchange and bring different perspectives on a single challenge gives us the ability to pose different scenarios to our clients. As we continue to support our clients on the (L)IBOR transition, we recognize that the end-state market has not solidified, and our goal is be ready for and anticipate future change.
For the latest news, insights, and transition timelines, please visit our (L)IBOR Center of Excellence here.