Clients Want Libor Alongside Risk-Free Rate: BofA Survey
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
People
Mark Cabana (Bank of America Corp)
Ralph Axel (Bank of America Corp)
Sebastien Cross (Merrill Lynch International)
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UUID: 7947283
(Bloomberg) -- BofA client survey found that 80% of respondents believe Libor should continue with a “more robust methodology,” while 73% believe the unsecured benchmark should continue alongside a risk-free alternative, BofA strategists Ralph Axel, Mark Cabana and Sebastien Cross say in note.
- Roughly 75% of respondents assigned a “less than 50% probability” that Libor will be phased out by end-2021; 60% said liquidity was a “very large or large impediment” to implementing alternative reference rate
- Almost three-quarters of respondents said they would transition hedging activity away from Libor when there’s greater clarity or when liquidity in instruments based on alternative rates “is satisfactory”
- Almost three-quarters of respondents said most likely to shift hedging, trading activity to OIS; asset managers indicated “greatest likelihood of shifting into cash and futures activity”
- Three-quarters of respondents believed “OIS+spread” would be Libor fallback in the event the rate is discontinued, “but the vast majority of respondents believed it would be problematic”
- Majority of respondents indicated a “high” or “medium” conviction that phase-out would cause longer-dated Libor-OIS widening; 69% had similar convictions for Libor-OIS curve steepening
- One-third of respondents said they planned to change hedging activity before 2021
- About two-thirds of banks expect hedging costs to increase with Libor phase-out, “with costs likely passed onto customers”; 56% of asset managers think hedging costs won’t increase with Libor transition
- More than half of asset managers suggested they’d unwind Libor positions ahead of any Libor disruption
- Survey based on responses from 164 clients conducted in first few weeks of October, with asset managers and banks comprising 78% of respondents and majority USD-focused
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
People
Mark Cabana (Bank of America Corp)
Ralph Axel (Bank of America Corp)
Sebastien Cross (Merrill Lynch International)
To de-activate this alert, click here
To modify this alert, click here
UUID: 7947283