Measuring #LIBOR Transition Risks

Updated: Jul 24

Usually, when people talk about the transition towards market-based benchmarks, the conversation quickly turns to the massive challenge of re-writing every since commercial contract priced in relation to LIBOR. It's not just derivatives that are impacted; a broad range of floating rate notes and even mortgages are in play. The transition also raises difficult risk measurement issues associated with comparing new collateralized benchmarks to new (and old) uncollateralized benchmarks. Real frontier issues exist regarding how to build a yield curve in this initially low data environment.

Beyond these technical issues, very real and difficult challenges await executives responsible for managing increasingly remote and distributed teams engaged in transition work. Under-appreciated challenges exist for global macro traders seeking strategic positioning opportunities within currency and bond markets given the implications that the LIBOR transition holds for portfolio concentrations and monetary policy.

Many could be forgiven for wishing that the entire transition could just be put on hold until the pandemic blows over.

Policymakers disagree. As our PolicyScope Report readers know, regulators and central banks have consistently reiterated the same message throughout the pandemic, even during the hectic days in March and April.

To help our friends and colleagues reconnect with these issues as we enter into a new phase of the pandemic, we teamed up with our colleagues at Stratagem Partners to product this 16-page White Paper.

It highlights how our PolicyScope data can be used to monitor and measure LIBOR transition exposures. It also provides a high level glimpse of key issues.

We will be writing more about LIBOR in the weeks ahead. Stay tuned!




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