Bloomberg Begins Publishing Fallback Rates for Certain Key IBORs
On July 21, 2020, Bloomberg and the International Swaps and Derivatives Association, Inc. (“ISDA”) announced that Bloomberg Index Services Limited (“BISL”) has started to publish fallback rates for certain key interbank offered rates (“IBORs”).
Calculations published by BISL include fallback rates for the following IBORs across various tenors: the Australian dollar Bank Bill Swap Rate (BBSW), the Canadian Dollar Offered Rate (CDOR), Swiss franc LIBOR, EURIBOR, euro LIBOR, sterling LIBOR, HIBOR, euroyen TIBOR, yen LIBOR, yen TIBOR, and U.S. dollar LIBOR. BISL calculates and publishes the following:
Adjusted RFRs: For publicly available RFRs, such as the Secured Overnight Financing Rate (SOFR), daily value would be compounded in arrears for each relevant term.
Spread Adjustment: The spread adjustment is based on the historical median over a five-year lookback period calculating the difference between an IBOR for each tenor and the relevant adjusted RFR for that tenor prior to a cessation or pre-cessation trigger event.
Fallback Rate: The “all in” fallback rate, which is the sum of the adjusted RFR and the spread adjustment for each relevant tenor.
The calculations and publications of the fallback rates are accessible through various channels, including the Bloomberg Terminal and Bloomberg’s website.
Market participants are encouraged to pay close attention to these newly published fallback rates and use them to help formulate a smooth transition strategy away from LIBOR. As Scott O’Malia, ISDA’s Chief Executive, stated: “The introduction of robust new fallbacks for derivatives contracts will significantly reduce the systemic risk posed by a permanent cessation of a key IBOR. Publishing indicative spread adjustments and all-in fallback rates now will help firms as they prepare to implement the new fallback methodology.”