May 4

• On Tuesday May 4^th the Financial Stability Board regional consultative group for the America’s discussed global and regional vulnerabilities. Apart from the impact of asynchronous recovery across regions, the board also discussed the importance for its members of transitioning away from LIBOR. That to me is a more realistic call than last week’s address by Mr. Fabio Panetta (see next page).
• On Thursday May 6^th the ECB noted in its economic bulletin that the forward curve of EONIA has remained broadly unchanged, suggesting no market expectations of an imminent policy rate change in either direction. The EONIA and the €STR averaged -48 and -57 basis points respectively over the review period (11 March to 21 April 2021), reflecting the fixed spread of 8.5 basis points between the two. A stable market is good, but we should not forget that short-term rates can behave quite volatile during system shocks, challenging market participants’ readiness to act.
• On the same day the ARRC published a set of market indicators that it will consider in recommending a forward-looking SOFR (no recommendation about a forward rate or administrator has been made by the ARRC as yet):
  • Continued growth in overnight SOFR-linked derivatives volumes
    • Visible progress to deepen SOFR derivatives liquidity (electronic market making, changes in market convention away from LIBOR towards SOFR, market making in SOFR-linked volatility products such as swaptions, caps and floors)
    • Visible growth in cash products.

Formulating robust methodologies for forward looking IBORs remains one of the hottest topics in the IBOR transition. Both their robustness and transparency depend on liquid markets from which forward-looking rates could be taken. On the same day Mrs Christine Lagarde, President of the ECB, spoke at the BIS about the move towards a green capital markets union for Europe to build more resilient capital markets fit for the future and ready to tackle the worst scenarios for climate change. A key element in her speech was her call for cross-border infrastructures and the challenge to deal with national constraints. To me the IBOR transition is one of those elements of a cross-border capital markets infrastructure that can help secure a better future.