Bumpy ride expected as Libor reaches end of road
Heavy reliance on contractual fallbacks leaves market facing series of post-cessation risks
The tarmac is running out for Libor. Holders of trillions of dollars’ worth of swaps, bonds and loans have already taken the exit ramp by actively switching their contracts to an alternative reference rate ahead of the benchmark’s December 31 end date.
But many others are staying on the road. They are relying on fallbacks and synthetic fixes that will forcibly shift instruments to risk-free rates (RFRs) when Libor ends. In other words, they are strapping on their seat belts and arming the
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