07-09-2022 | treasuryXL | Refinitiv | LinkedIn |

The USDCNY historical volatility, the expert webinar on Inflation Growth & Markets, Refinitiv Corporate Treasury Newsbeat and much more. All summarised in the new Corporate Data Insights by Refinitiv.

Chart of the Month

1M and 3M USDCNY historical volatility 

[Webinar] Inflation, Growth and Markets: Hear from the Experts |

ts triggered by supply chain interruptions and wage demands as economies roared back to life post-COVID were compounded in February by Russia’s invasion of Ukraine, disrupting crucial commodity supplies. Join a panel of expert Reuters editors to discuss the issues and hear from Refinitiv’s Director of Macro and Economics on how to use Workspace and Eikon product enhancements.

After a volatile start to July, the FTSE 100 crept up a touch less than 250 points over the month, with other equity markets globally turning upwards in a similar fashion from late June recent lows. At the same time, the yield on the benchmark 10-year gilt was squeezed by about 90 basis points. Fund flows, however, do not reflect this—at least at the most broad-brush asset class level, with redemptions excluding money market vehicles running to £7.9bn.  Find out more about recent asset flow trends >

Breakingviews: D.C. turf war opens crypto regulatory arbitrage 

Cryptocurrency ventures can divide and conquer Washington’s regulatory fiefdoms. The U.S. Federal Reserve staked out its turf this week, telling lenders to notify it if they offer services for bitcoin and its ilk. Other agencies are also wrestling to oversee the $1 trillion market. The scrap provides an opportunity for some industry participants, but it hurts token owners. Read on >

Deep U.S. curve inversion hastens the recession it predicts 

14-07-2022 | treasuryXL | Refinitiv | LinkedIn |

A recent Refinitiv expert talk looks at the digital banking and fintech arena, unpacking the compliance challenges that dominate the sector and offering advice for a best-practice response.

Read more

Fixed income volatility looks like it will be around for a while, due to whipsaw-like changes in the overall economic environment. In such an environment, firms need to have the right evaluated pricing to ensure they are pricing their portfolios at fair value levels and that they are complying with regulations.

Read more

05-04-2022 | treasuryXL | Refinitiv | LinkedIn |

In December 2021, LIBOR setting publication ceased on over two dozen settings. But the transition is far from over as phasing out continues for legacy contracts.

Source

1. As of the end of last year, 24 LIBOR settings have ceased publication.
2. The FCA confirmed Synthetic LIBOR to be allowed for the temporary use of “synthetic” sterling and yen 1M, 3M and 6M LIBOR rates in all legacy LIBOR contracts.
3. The main challenge that remains is the USD LIBOR Transition

For more data-driven insights in your Inbox, subscribe to the Refinitiv Perspectives weekly newsletter.

Since the end of 2021, publication of 24 LIBOR settings has stopped (CHF, EUR, GBP, USD and JPY) and the most used GBP and JPY LIBORS are now being published with a new methodology called “synthetic LIBOR”.

USD LIBORs will continue to be published until mid-2023 using panel bank submissions. Discussions surrounding Euribor are ongoing, but EU regulators appear to be waiting until the LIBOR cessation has fully taken place to define a more detailed agenda for Euribor.

To sum it up – the LIBOR transition is not yet over!

Refinitiv Eikon gives you the information you need – whenever and however you want it

What is Synthetic LIBOR?

On 16 November 2021, the FCA confirmed Synthetic LIBOR to be allowed for the temporary use of “synthetic” sterling and yen 1M, 3M and 6M LIBOR rates in all legacy LIBOR contracts.

This applied to all other than cleared derivatives, that have not been changed at or before 31 December 2021.

The Synthetic LIBOR are published on existing Refinitiv Instrument Codes (RICS), as shown in Figure 1.

Synthetic LIBOR methodology

Synthetic LIBOR = ISDA Median Spread + Term Rate.

For example, the JPY 3M Synthetic LIBOR value published on JPY3MFSR= RIC is calculated as per below:

JPY3MFSR=; -0.00020630 = JPY 3M ISDA IBOR Spread (JPY3MFSRS=ISDA ; 0.0000835) + [JPY 3M term rate (JPYTRR3M=QCKJ ; -0.0002938) x (360/365) ; -0.000289775]

*Please note that Refinitiv is an authorised distributor of ISDA spreads. You can find ISDA fallbacks and Term Rates in the Refinitiv Eikon IBOR App.

USD LIBOR challenges

The main challenge that remains is the USD LIBOR transition. Even with the cessation set to 30 June 2023, market participants have been asked to implement transition and identify fallbacks by regulators.

Even if the use of USD LIBORs has been discouraged and drastically limited for new contracts, data from DTCC and ISDA suggests that LIBOR contracts were traded in January 2022 but in low volumes.

The FCA defined clearly the stipulations in Further Provision and Information in relation to the Prohibition and the Exceptions:

• The market-making exception applies only where market-making is undertaken in response to a request by a client seeking to reduce or hedge their USD LIBOR exposure on contracts entered before 1 January 2022.
• The prohibition does not prohibit new single currency USD LIBOR basis swaps entered in the interdealer broker market.

The lack of credit component in SOFR appears to raise some issues, mostly from regional banks, that also stressed the fact that borrowers will struggle with SOFR. LIBOR is a forward-looking term rate and interests are known upfront, with SOFR and other alternative Risk-Free Rates (RFR), interest is compounded and only known at the end of the period.

*Please note that credit-sensitive rates such as Ameribor, AXI or BSBY are available in Refinitiv Eikon but are NOT endorsed by the ARCC or FCA.

On the cash market, the Alternative Reference Rates Committee (ARRC) Progress Report, published on 31 March 2021, estimated there will be approximately $5trn USD LIBOR referencing contracts in business loans, consumer loans, bonds and securitisations maturing after June 2023.

Many of these exposures may have suitable fallback language and will be able to transition away from LIBOR prior to cessation.

ARRC has selected Refinitiv to publish its recommended spread adjustments and spread adjusted rates for cash products. The USD IBOR Cash Fallbacks provide market participants, including lenders and borrowers, with an industry-standard agreed rate, which can clearly and easily be referenced in contracts.

Refinitiv launched USD IBOR Consumer Cash Fallbacks 1-week and 2-month settings on 3 January 2022.

Update on derivatives

As mentioned in the December 2021 Bank of England Risk-Free Rate Working group newsletter, the transition towards Risk-Free Rates is progressing steadily, as per the charts in Figure 5 for cleared swaps and exchange-traded futures:

In a Risk.net article, Philip Whitehurst, Head of Service Development, Rates at LCH (part of LEG Group) said: “Sterling LIBOR was the most substantial population LCH had converted, amounting to about 185,000 trades for around $15trn worth of cleared swaps. They were converted into Sterling Overnight Index Average (SONIA) equivalents on a compensated basis.

“The same was applicable for around 75,000 yen LIBOR trades, with aggregate notional of about $4.5trn, and 25,000 to 30,000 Swiss LIBOR trades worth about $1.5trn, as well as a very small population of euro LIBOR trades.”

Whitehurst stressed that Euribor trades were not converted.

On the OTC Derivatives markets, the adoption of new Risk-Free Rates is very high.

GBP, CHF and JPY swaps are now exclusively done on new Risk-Free Rates. SOFR swaps are progressing versus LIBOR, at a quite slow pace, and now represent close to 50 percent of the traded notionals, according to ISDA swaps info figures.

Unsurprisingly, the exception remains EUR, where fewer than 30 percent of the traded notionals are on €STR.

Cross-currency swap markets are rapidly ditching legacy interest rate benchmarks in favour of RFRs.

Since the beginning of 2022, trades in euro/dollar cross-currency OTC swaps have almost exclusively referenced the secured overnight financing rate (SOFR) and the euro short-term rate (€STR).

DTCC data repositories from U.S. markets data show how 95 percent of USD / GBP, USD / JPY and USD / CHF now trade RFR versus RFR.

The transition has been pushed by RFR First initiatives, the second phase of SOFR First, launched in September 2021. It stated that interdealer trading conventions for cross-currency basis swaps between USD, JPY, GBP, and CHF LIBORs will move to each currency’s risk-free rates.

Cross-currency swaps prices can be found in Refinitiv Eikon, using the OTC advanced search tool, the OTC Pricer App and the Swap Pricer app, which now allow price cross-currency swaps based on new RFRs.

Not the end of the LIBOR transition

Although 24 LIBOR settings have already been discontinued, this does not spell the end of the LIBOR transition.

Market participants are still actively transitioning away from LIBOR trades in USD, while getting prepared for other IBORs transitions in the Eurozone and the rest of the world.

Refinitiv Eikon gives you the information you need – whenever and however you want it

01-02-2022 | treasuryXL | Refinitiv | LinkedIn |

Andrew Hollins, Director of Corporate Treasury Proposition at Refinitiv, brings you a round-up of the latest Corporate Treasury Data Insights, including corporate treasury activity during COVID-19 illustrated through Refinitiv’s usage data, a Refinitiv report on ESG risk and whether carbon markets matter to COP26.

1. Corporate treasury activity illustrated through Refinitiv data usage saw the COVID-19 pandemic split into three distinct phases.
2. The initial phase concentrated on credit risk data and analytics, as well as corporate financial data. Meanwhile, phase two focused on cash balances, and phase three honed in on ESG data and analytics as the world moved towards the ‘new normal’.
3. Other areas of corporate treasury under the microscope included risk mitigation and ESG, carbon markets and COP26, and the state of the U.S. labour market.

For more data-driven insights in your Inbox, subscribe to the Refinitiv Perspectives weekly newsletter.

Chart of the Month

Refinitiv’s usage data paints a fascinating picture of corporate treasury activity throughout the pandemic. As events unfolded, we saw interesting and distinct dynamics play out.

We’ve discerned three phases of the pandemic.

Phase 1: the survival phase

The standout feature of this initial period was the focus on credit risk data and analytics, highlighted by an unprecedented increase in usage of the Credit Default Swaps app – 155 percent in EMEA, and 120 percent in Asia and the Americas.

Demand for corporate financial data also grew strongly – notably company fundamental data (usage up 81 percent), private company data (usage up 33 percent), sectoral data, and peer analysis (usage up 113 percent).

Conversely, during this initial phase, we saw a distinct fall in demand for ESG and LIBOR-related data and analytics.

Phase 2: the cash and corporate health phase

From June to September 2020, activities aimed at boosting cash balances were very much apparent. Our data showed a notable acceleration in corporate debt issuance.

In addition, there was also another, even bigger, jump in demand for company fundamental data with usage of key ratios and cashflow data growing by 160 percent and 175 percent respectively.

Phase 3: return to ‘new normal’

Emerging from the pandemic demand for ESG data and analytics is once again rising strongly. Between December 2020 and March 2021, it has grown by 93 percent to stand well above pre-COVID-19 levels.

This trend is likely to continue its upward trajectory given the rapidly evolving regulatory and demand-led factors that seem to be driving the focus on sustainability.

Refinitiv unpacks more of our usage data insights in a new masterclass series produced in collaboration with TreasuryToday.

Log-in or register at TreasuryToday to follow the series

Refinitiv report: Risk mitigation and the pivotal role of ESG

The far-reaching consequences of COVID-19 have forever changed the risk landscape, and rising levels of third-party risk now demand urgent attention.

Persistent gaps in formal due diligence must clearly be addressed, but a broader sea change is needed: both financial institutions and corporates need to adopt a more holistic approach to risk management – one that incorporates environmental, social and governance considerations as a fundamental tenet of the risk mitigation process, rather than as a separate silo.

Read the report: Risk mitigation and the pivotal role of ESG

Why do carbon markets matter to COP26?

Carbon markets are a key tool for countries to cut their greenhouse gases and meet their Paris Agreement commitments.

The cost of polluting is rising in Europe, parts of North America, South Korea and New Zealand. Most likely it will do so in China, the latest country to launch a national emissions trading system.

Read the blog: Why do carbon markets matter to COP26?

Are U.S. labour markets healing?

The COVID-induced rigidities in the U.S. labour market are easing, but the labour market remains extremely tight, implying potential upwards pressure on inflation from wages.

What can the Beveridge curve tell us?

Inflation gets complicated

There are textbook ways for investors to beat inflation. Unfortunately, we do not live in a textbook world.

Inflation chatter is always a thing, but the shocks are now coming thick and fast.

Decades of globalisation had muted inflation, and the last time the Consumer Price Index (CPI) topped 5 percent was just over a decade ago.

Refinitiv Lipper explores

Refinitiv Corporate Treasury Newsbeat

• Refinitiv launches USD IBOR Institutional Cash Fallbacks in production to facilitate industry transition from USD LIBOR | Refinitiv has announced that USD IBOR Institutional Cash Fallbacks are now production benchmarks, and it will launch USD IBOR Consumer Cash Fallbacks 1-week and 2-month settings pending Refinitiv Benchmark Services (UK) Limited (“RBSL”) board approval. Read more