On 15 May 2019, the Bank of England published a statement on behalf of its Working Group on Sterling Risk-Free Reference Rates (WG) regarding the progress on adoption of risk-free rates in sterling markets.
Key points in the statement include:
- sterling-denominated financial markets have begun to shift decisively away from LIBOR and towards SONIA;
- in the derivatives markets, the share of swaps traded using SONIA is broadly equivalent to that linked to LIBOR. Also, liquidity and open interest in SONIA futures is growing steadily and SONIA is being adopted in cash markets;
- the next goal is to reduce reliance on LIBOR in other sterling cash markets, including loans;
- the WG anticipates that corporate borrowers will increasingly prefer contracts that reference compounded overnight SONIA;
- the WG expects future use of forward risk-free term rates in cash markets to be more limited than the current use of LIBOR;
- three administrators (FTSE Russell, ICE Benchmark Administration and Refinitiv) have confirmed they are working on the development of a Term SONIA Reference Rate (TSSR); and
- over the remainder of 2019, the WG expects administrators will work to establish if a robust TSSR, compliant with international standards, can be produced on a timetable consistent with the broader transition work.