巴黎银行-全球-信贷策略-IBOR回调：潜在的信贷利差-20190624-11页_1mb

G10 Interest Rates: IBOR Back-Ends and Credit Spread Adjustments

Core Content

This document provides an analysis of the potential credit spread adjustments when IBOR (Interbank Offered Rate) back-end mechanisms are triggered. It outlines the methodologies under consideration for the transition from IBOR to Risk-Free Rates (RFRs), the timeline for the implementation, and the implications for market participants.

Key Messages

• Credit Spread Adjustment: The final credit spread adjustment will be determined based on the fallback methodology chosen. The adjustment will be calculated as of the day before the fallback is triggered and then frozen.
• Confidence Intervals: The confidence interval for the USD, GBP, and JPY Libor is relatively wide due to high realised volatility.
• Hedging Considerations: Some clients may benefit from hedging basis exposure early, while others may wait for the fallback parameters to be published, which could lead to a swift repricing.
• Publication Deadline: The key parameters for the fallback methodology are expected to be published by December 2019, with guidance possibly emerging as early as August 2019.
• Fallback Methodology: The fallback rate will be based on a RFR (Risk-Free Rate), with the spread adjustment calculated using either the historical mean or median approach.

Term Adjustment

• Definition: The term adjustment is calculated on an ongoing basis.
• Method: It involves daily compounding of the RFR observed throughout the IBOR period.
• Purpose: This method is used to determine the risk-free rate component for the fallback rate.

Credit Spread Adjustment

• Definition: The credit spread adjustment is calculated as of the day before the fallback is triggered and then frozen.
• Method: The historical mean/median approach is preferred for the spread adjustment, with a potential trim to remove outliers.
• Preference: Stakeholders prefer the historical mean/median approach for GBP Libor, CHF Libor, JPY Libor, Tibor, and BBSW.

ISDA's Next Steps

• Vendor Appointment: ISDA will appoint a vendor to begin publishing rates around the end of 2019, initially for informational purposes.
• Consultation: Consultation on the key parameters of the fallback methodology will start once the USD Libor, CDOR, and Hibor consultations are complete, expected towards the end of summer 2019.
• Supplement Publication: A supplement to the 2006 ISDA Definitions with permanent cessation trigger and fallback language is expected by the end of 2019.
• Amendment Protocol: An amendment protocol will be launched to facilitate voluntary multilateral amendments to legacy derivative transactions, likely effective by the end of Q1 2020. It will include cleared trades but exclude Euribor and Euro Libor.
• Cessation Date: An official public statement is required to determine the cessation date of an IBOR, which will influence the fallback spread adjustment.

Stakeholder Feedback

• Preferred Approach: The compounded setting in arrears rate for the risk-free rate with the historical mean/median approach for spread adjustment is preferred for several IBORs.
• USD Libor Consultation: The deadline for responses to the USD Libor, CDOR, and Hibor consultation is 12 July 2019, with results expected around August.
• Euribor and Euro Libor: Consultation on these will start once €STR is published from 2 October 2019. Eonia will be permanently fixed at 8.5bp over €STR from that date.
• Universal Approach: While many stakeholders prefer a universal approach, the outcome of the USD Libor consultation will be crucial in determining this.

Estimating the Adjustment

• Assumption: All IBOR backfalls are assumed to be triggered at the end of 2021.
• Lookback Period: This is a critical parameter, as it determines whether volatile episodes are included in the calculation.
• Method Variations:
  • 5-Year Median Approach: Uses the median of the spot IBOR vs RFR spread over a 5-year period.
  • 10-Year Trimmed Mean Approach: Uses a 15% trimmed mean of the spread over a 10-year period, which may deviate more from the current spread.
• Confidence Interval: A 1 standard deviation confidence interval is calculated based on the latest 3-year realised volatility of the actual IBOR-OIS spread.
• Forward Basis Spread: This is blended in gradually as a best estimate of the future spread.

Summary Table: IBOR-OIS Spread Projections for YE 2021

Key Parameters

• Lookback Period: Determines the inclusion of volatile episodes. Preferences may vary across IBORs.
• Historical Mean or Median: Stakeholders are split on this method, but a trim is likely to be applied if the mean is chosen.
• Timing of Cessation: The cessation date of an IBOR will determine the fallback spread adjustment. The Libor Panel banks will continue submissions until at least the end of 2021, but the trigger date may be before or after.

Additional Notes

• The document is written by the Strategist and Economist teams of BNP Paribas and is not intended to be exhaustive or independent research.
• It is a marketing communication and not investment research, and may be subject to conflicts of interest.
• The information is based on public sources and is subject to change without notice.
• BNPP may be involved in transactions related to the products discussed, and may have conflicts of interest.
• The document does not constitute a prospectus, and is not intended to be relied upon as such.