Even though substantial progress has been made toward weaningthe global financial system off of LIBOR, markets have undervaluedthe risk that a zombie version of the vital benchmark will continueon, according to JPMorgan Chase & Co. strategists.

Its overseer, the U.K. Financial Conduct Authority (FCA), saidtwo years ago that banks won't have to submit the data used tocalculate LIBOR starting in 2021. However, because there's noexplicit ban on submissions, JPMorgan suspects a smaller panel offirms may keep feeding it numbers, leaving the index in aproblematically undead state.

"Though average zombie LIBOR levels may not differ much from abroader panel, there is a substantial risk of much highervolatility," strategists led by Joshua Younger wrote in a Sept. 6note subtitled "Too weird to live, too rare to die."