Early Market Reception to Risk-Free Rates

Keith Mullin

Keith highlights the intended transition from LIBOR to SOFR, an alternative risk-free rate. However, associated with this transition is a wide range of reluctance and objections, many of which are discussed within the video. Some of which include - uncertainties regarding how the new rate will work overtime and arguments from mid-sized US banks about the 'one size fits all' approach.

Markets

Risk management

Treasury

Fixed Income

Overview

Capital markets activity linked to the Secured Overnight Financing Rate (SOFR), the US risk-free rate (RFR) chosen to replace Libor, has evolved ahead of RFR activity in other jurisdictions. But transition has been dogged by inertia and a certain amount of reluctance from market participants. Uncertainties abound with regard to operational aspects of transition and how RFRs will work over time. Debt issuance linked to or referencing RFRs should pick up as issuers, trade bodies and service providers issue an array of debt, launch new tools and products and inaugurate new structures.

Key learning objectives:

What are some of the factors slowing the switch to risk-free rates?
What were the objections to SOFR expressed by a group of mid-sized US banks in February 2020?
Which factors will help issuance of debt, issuance linked to RFRs or referencing RFRs?

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Summary

Expert

Keith Mullin

Keith is the founder and director of KM Capital Markets, a media and thought-leadership consultancy. He spent the past 35 years working in specialist capital markets media and has had a ring-side seat at all of the major market events. Prior to setting up KM Capital Markets in 2017, Keith worked at Thomson Reuters.