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Libor transition update: Synthetic rates for Sterling and Yen

The FCA has confirmed that synthetic rates will be published for 1, 3 and 6 month Sterling and Yen LIBOR from the 1st of January 2022, for at least 12 months.

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The FCA has confirmed that synthetic rates will be published for 1, 3 and 6 month Sterling and Yen LIBOR from the 1st of January 2022, for at least 12 months.

These rates will be available for use in all legacy contracts, except cleared derivatives, because clearing houses already plan to transition their instruments to risk-free rates by the end of this year.

How will Sterling synthetic LIBOR be calculated?

Sterling synthetic LIBOR will be calculated as follows:

  1. The ICE Term SONIA Reference Rate (“TSRR”), which measures the expectation of what SONIA will be over the relevant forward-looking time period (1, 3 or 6 months);
  2. Plus an ISDA credit adjustment spread for the relevant tenor.

The ISDA credit adjustment spreads were fixed earlier this year, when the FCA announced that LIBOR would cease. These were calculated on a 5-year historical spread between LIBOR and SONIA:

Currency Tenor Credit adjustment spread
GBP 1 month 0.0326
GBP 3 months 0.1193
GBP 6 months 0.2766

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