USD zombie LIBOR lives on

The FCA has announced that the synthetic 1-, 3- and 6 month USD LIBOR will be extended until 30 September 2024. Previously scheduled to end on 30 June 2023, the FCA refers to the extension as a “short period”. The synthetic LIBOR tenors will be available to all market users for rate-setting of legacy contracts, with the exception of cleared derivatives. The use of synthetic USD settings will cease for all new contracts from 1 July 2023.

USD LIBOR transition has proved to be particularly resistant to transition. Although there has been relatively slow build-up in SOFR liquidity, the rate’s inclusion of secured repos has also caused concern in the leveraged loan market that Regulator-imposed credit spreads insufficiently reflect the increased post-LIBOR risk. For the avoidance of doubt, the FCA re-affirm that “Synthetic Libor is only a temporary bridge…will not continue simply for the convenience of those who could have transitioned their contracts but have not done so.” The extension is effectively a mopping-up exercise and joins the earlier extension of 3m GBP synthetic LIBOR to 28 March 2024. Although hardly a surprise, this latest (and almost certainly last) extension is a recognition that the job is still to be finished and another indication that Regulatory financial fiat is far from absolute.

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