Libor webinar playback: traders hope for liquidity catalysts

The coming six months are a “make or break” period in the Libor transition project, according to participants in this Risk.net webinar – originally broadcast on June 23, as part of Libor Virtual Week.

Liquidity has been growing in instruments linked to new risk-free rates – but not rapidly enough to feel confident about the market’s ability to cope with Libor’s possible cessation at the end of 2021.

Markets are now approaching several potential tipping-points that could each add liquidity and momentum to RFR trading – notably, the adoption of RFR discounting by euro and US dollar swap clearing houses, the same move in non-cleared collateral agreements, and the much-anticipated release of the protocol that will re-hitch Libor derivatives positions to the RFRs once the old benchmark ceases publication.

Traders from JP Morgan and Morgan Stanley joined Tradeweb to assess the impact each of these changes will have. And JP Morgan’s Prickett called out the “elephant in the room” that is holding back adoption of RFRs in the swaptions market – the lack of depth in RFR futures, a key hedging instrument for non-linear traders.