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LIBOR TRANSITION

Successfully navigate the LIBOR transition and its effect on various fixed income asset types and your workflow and results.

FACTSET'S GUIDE TO THE CESSATION OF LONDON INTERBANK OFFERED RATE

The London Interbank Offered Rate (LIBOR), arguably the most important benchmark in today’s financial markets, underpins trillions of dollars of derivatives and fixed income securities. However, due to flaws in how the rate is calculated via poll and risk of rate manipulation, in 2017 the Financial Conduct Authority announced that they would no longer compel top-tier banks to respond to the IBA poll after 2021--essentially declaring the end of LIBOR as a valid financial benchmark.
 
Read on to learn how this transition away from LIBOR will affect various fixed income asset types. For more information regarding how this affects your workflow and results as a FactSet client, please contact your account team or analytics specialist.
 
To learn how becoming a FactSet client can help you navigate this transition, speak to a FactSet Specialist.
 
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LEARN MORE ABOUT THE LIBOR TRANSITION

A Stylized History of the Risk-Free Rate Transition

By Tom P. Davis, PhD, CFA  |  August 18, 2020

Although there have been many consultations, announcements, and discussions with various regulatory boards (the ARRC, the FCA), there is still uncertainty around aspects of the LIBOR transition.

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The End of LIBOR is Nigh

By Tom P. Davis, PhD, CFA  |  October 31, 2018

The London Interbank Offered Rate (LIBOR) has been a mainstay of the financial markets since its inception in the 1980s as an underpinning of the then nascent swap market. Since then, LIBOR has gained fame, and more recently notoriety, and is the reference rate for over $240 trillion in securities globally.

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Beware the Ides of September: Update on the SOFR Transition

By Tom P. Davis, PhD, CFA | October 31, 2019

In April of 2018, the NY Fed began officially reporting SOFR, and the market started observing its dynamics. SOFR is a volume-weighted median of tri-party repo transactions. Since it is determined by market transactions, the rate is affected by supply and demand, which is driven by daily bank operations and bank intervention. The overnight repo market is especially active at month and quarter-end. This effect, called the “turn”, is well known in money markets.

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The LIBOR Market Model and Mortgage Analytics at FactSet

The valuation of structured products relies on projected prepayments, which in turn rely heavily on the realized path of the mortgage rate. Any stochastic interest rate model must reflect the important empirical behavior that affects the prepayments. A critical behavior of the model is to show high serial correlation of the 10-yr swap rate, which plays a central role in the determination of the mortgage rate.

In this white paper, we explore the LIBOR market model (LMM) and its superiority to a multifactor short rate model when reproducing this serial correlation.

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Integrating the firm’s desired data sets took less than 24 hours, dramatically expanding the pricing, consensus, and broker-level estimates available to the research team overnight.

See how an investment manager automated data integration and connectivity to become more efficient.

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