Progress in the Cross Currency Market towards the new RFRs
Alternative risk-free rates (RFRs) have made significant headway through Q3 in the single currency swaps market as race to replace Libor continues, according to MarkitSERV analysis.
Data from the OSTTRA-owned firm shows that real progress has been made in the shift away from IBOR in the swaps market. GBP remains on top with reformed SONIA making up almost 80% of new trades executed. However, dramatic moves have been made with JPY, CHF and SGD.
TONA increased to 60% of JPY swaps executed in September, up twelvefold from 4.5% in June; SARON has increased to almost two thirds of CHF swaps executed in September, more than doubling since June; SORA has suddenly increased to over 70% of SGD swaps executed in September, up from 15% in June and less than 5% in May. Although the US deadline for the Libor transition is over a year away, 17% of USD swaps currently use SOFR marking a notable uptick from 3% in June, driven by the SOFR-first initiative.
Commenting on the findings, Kirston Winters, Managing Director at MarkitSERV, OSTTRA, said: “As we approach the end of Libor, it’s clear the market has made huge strides to avoid fallout in the swaps market.”
“While SONIA continues to lead the way with almost 80% of the GBP swaps market, there has been sudden dramatic progress with SORA, SARON and TONA as part of the wider IBOR reform. As we approach the end of the year, the situation in the GBP, JPY, CHF and SGD swaps market will be encouraging for industry bodies,” he added.
The findings are based on data from MarkitSERV, evaluating the progress during Q3 of the IBOR transition for single currency interest rate swaps (IRS), analysing market share in; EUR, GBP, USD, JPY, CHF, AUD, CAD, and SGD between legacy IBORs, legacy / continuing overnight index swaps (OIS) and the new risk-free rates. The full findings can be found here.