The latest candidate to replace LIBOR is the $20 trillion U.S.Treasuries market.

|

Tradeweb Markets Inc. and Intercontinental Exchange Inc. (ICE)are offering up an alternative in the form of a daily Treasuryyield curve with 12 tenors ranging from one month to 30 years. Theorganizations started publishing the yield curve last week. Theyields are based on transactions done over the course of the day onTradeweb's institutional trading platform, among the biggestmarketplaces for U.S. government debt.

|

|

Intercontinental Exchange says the rates "offer a number ofpotential benefits for market participants." It also touts theproduct as more consumer-friendly than the Secured Overnight Financing Rate (SOFR), thegauge that U.S. regulators have endorsed to replace LIBOR by thedeadline at the end of next year.

|

A sequence of yields on Treasury securities "is an easierconcept for many household borrowers to understand than benchmarksbased upon repurchase rates or wholesale bank funding rates,"Timothy Bowler, president of ICE Benchmark Administration, said.SOFR is based on overnight loans collateralized by Treasuryrepurchase agreements.

|

The Treasury yield curve, which the companies say will complywith principles for benchmark administration published in 2013 bythe International Organization of Securities Commissions (IOSCO),"could be a viable alternative to U.S. dollar LIBOR" inapplications including variable-rate mortgages and total returnbenchmarks for short-duration funds, said Bowler, who previouslyworked for the Treasury Department and Goldman Sachs Group Inc.

|

LIBOR's use as a benchmark dates from 1986 and was embedded inmore than $350 trillion of financial contracts in 2017 when U.K.regulators announced measures intended to phase it out by 2021. IBAtook over the administration of LIBOR from the British BankersAssociation in 2014.

|

 


See also:


 

|

The transition to a successor has been under way for years andremains "of paramount importance," John Williams, the president ofthe Federal Reserve Bank of New York, said this week. A committee convened by the U.S. centralbank picked SOFR—which is administered by the New York Fed—as itspreferred alternative to LIBOR in 2017. The New York Fed this monthsaid its SOFR index and averages are IOSCO-compliant.

|

Tradeweb and IBA say IOSCO compliance is one of several waystheir new product is distinct from yields the Treasury Departmentpublishes for its securities. The government's quotes are asnapshot based on prices provided by dealers, while theTradeweb/IBA collaboration is based on transactions over the courseof the day. The companies' yields go out to an additional thirddecimal place and will be published weekdays by 5 p.m. New Yorktime.

|

Announcing the product on Thursday, they said they've beentesting it for 18 months and are asking stakeholders for feedbackby September 18 before finalizing the methodology.

|

Tradeweb and IBA last year collaborated on the introduction ofdaily closing prices for Treasury securities.

|

 

|

 

|

Copyright 2020 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.