Libor Gets Stay of Execution, Overseas Market Heating Up

  • The Intercontinental Exchange Benchmark Management Agency may extend the three-month U.S. dollar Libor withdrawal deadline
  • The London interbank offered rate is one of the cornerstones of the global financial system, and still supports hundreds of trillions of dollars in financial assets.
  • The overseas market will be very exciting in December

The Intercontinental Exchange Benchmark Management Agency may extend the three-month U.S. dollar Libor withdrawal deadline by one and a half years (previously the expected withdrawal date was the end of 2021). The six-month and 12-month U.S. dollar Libor deadline may also be postponed.

USD Libor-OIS Contagion

According to statements from the Federal Reserve Board of Governors, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency, regulators responsible for the U.S. dollar, Libor are considering extending the duration of this untrustworthy benchmark interest rate until the end of June 2023. The U.S. regulators said:

“Given consumer protection, litigation, and reputation risks, the agencies believe entering into new contracts that use USD Libor as a reference rate after December 31, 2021, would create safety and soundness risks and will examine bank practices accordingly.”

The London interbank offered rate is one of the cornerstones of the global financial system, and still supports hundreds of trillions of dollars in financial assets. After encountering manipulation scandals and drying up of transaction data, regulators have been seeking to phase out the benchmark interest rate, but these efforts have been hindered during the coronavirus pandemic.

The statement stated that the Intercontinental Exchange Benchmark Management Agency will seek comments on the plan to stop the release of the one-week and two-month Libor on time. They stated, “extending the release period of certain dollar Libor to June 30, 2023 will allow most of the remaining dollar Libor contracts to expire before Libor withdraws.”

A senior Federal Reserve official said that the current path is to require banks to stop writing new U.S. dollar Libor contracts before the end of 2021, but allow most of the old contracts signed before that to expire before Libor ceases.

“This should reduce the probability of a disruption for legacy Libor contracts that may not have been able to transition to new risk-free rates,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities in New York. “In effect, the regulators continue to encourage the transition but allow some reprieve for legacy contracts.”

Overseas Market will be Very Exciting in December

The United States Food and Drug Administration is a federal agency of the Department of Health and Human Services.

In the past few weeks, good news about vaccines has been an important factor driving up the risk appetite of US stocks. With the coming of December, this will continue to be the focus of the market, and more events will continue to appear.

In a recent report, the Nordic Union Bank of Sweden listed the possible progress of the next overseas vaccine launch, and it is expected that the U.S. Food and Drug Administration (FDA) will approve the emergency use of Pfizer’s vaccine in mid- to early December.

In the middle of this month, vaccines will be provided to high-risk groups in developed markets. This will also be the first vaccine approved overseas.

However, before the vaccine is approved, the continued deterioration of the overseas epidemic situation may still be a high probability event. Nordic Bank believes that this is mainly because the low temperature in winter helps the spread of the virus, so the low temperature this winter may also be the high point of the epidemic.

In addition, the Fed’s next FOMC meeting will also arrive in mid-December. This will be one of the most watched Fed meetings this year, because the market has previously rumored that the U.S. Treasury Department and the Fed have disagreements over anti-epidemic rescue tools.

Another thing to note in December is that as a large number of derivatives will expire at the end of the season. Tesla will also be officially included in the S&P 500 index, which may become the most important factor affecting the US market.

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Doris Mkwaya

I am a journalist, with more than 12 years of experience as a reporter, author, editor, and journalism lecturer." I've worked as a reporter, editor and journalism lecturer, and am very enthusiastic about bringing what I've learned to this site.  

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