In Short: Libor, soon an un-offered rate


Although it was widely expected that the London interbank offered rate would eventually be phased out, today’s announcement by a U.K. regulator that Libor will meet its demise at the end of 2021 took market participants by surprise, exacerbated by the lack of details regarding a replacement. In the U.S., the Alternative Reference Rates Committee formed by the New York Federal Reserve Bank recently suggested the use of a Treasury repo benchmark as an alternative, but that measure has not yet been developed fully. Today’s announcement has material significance for broader markets, the over-the-counter interest-rate derivatives market in particular, and this topic will be of substantial interest in the days and weeks to come.

In the midst of the uncertainty, however, we want to state clearly that our money market portfolios are not immediately affected by these developments. While floating-rate securities tied to a Libor index are common holdings within money market funds, the maturity restrictions of SEC Rule 2a-7, in conjunction with rating agency requirements and our own internal policies, means our current holdings of Libor-based floaters will mature long before the end of 2021. We expect efforts to develop an official replacement to intensify and will monitor this progress closely.