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LIBOR keeps spinning

Only 2.5 percent of the first quarter’s $70 trillion of interest derivative contracts, were tied to benchmarks proposed to replace LIBOR when it goes obsolete at end-2021 – less then three years from now.

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The 2.5 percent figure shows in a new study by the International Swaps and Derivatives Association (ISDA), as news site Treasury & Risk reports.

The replacement candidates include the Secured overnight financing rate (SOFR) which is in dollars, and the sterling overnight index average rate (SONIA), meant to serve the UK markets.

Treasury 360 observes, however, that some system suppliers have kicked off marketing efforts to position themselves as providers of suitable solutions.

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A Schroedinger cat

With a parallell to the famous paradox known as Schroedinger’s cat, which under incomplete information can be viewed as simultaneously dead and alive, the Treasury & Risk article notes the London interbank offered rate (LIBOR) could be challenging to replace.

Treasury & Risk quotes Stanford University professor Darrell Duffie, who recently described the effort to replace LIBOR as “the largest financial engineering project the world has ever seen”.

All too important

The British Banking Association, which used to oversee it, dubbed it “the world’s most important number”, yet Treasury & Risk now observes that it “is proving almost impossible to kill off”.

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