International: LIBOR transition - Are overnight rates overrated?

Recent developments in RFR term rates and credit-sensitive rates

In brief

As LIBOR transition has proceeded, participants in the financial markets have faced choices between possible LIBOR replacements. This client alert examines recent developments in the US and the UK with respect to both term rates based on risk-free-rates (RFRs) and credit-sensitive rates (CSRs), and also examines CSRs and term rates in the other LIBOR jurisdictions.


Key takeaways

  1. There have been recent developments with respect to both term rates based on RFRs and CSRs. The available choices, and regulatory and market acceptance of alternatives to RFRs, varies by currency and market. 
  2. At present, the US has seen more development of (and receptivity to) CSRs than the UK. 
  3. Although versions of term SONIA exist, UK regulators have put in place a limited use case of term SONIA in the UK loan market. A term SOFR has not yet been recommended by US regulators, but such a recommendation may occur soon, and term SOFR is not expected to be subject to a limited use case in the US loan market. 
  4. In Japan and the eurozone, TIBOR and EURIBOR, which are CSRs, will continue after LIBOR cessation.

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