JPMorgan Chase – US Banks Execute First BSBY-Linked Swaps Transaction
According to Bloomberg, the banks entered into a USD 250 million one-year basis swap with one side tied to BSBY, the other tied to SOFR.
SOFR is the Federal Reserve’s preferred replacement rate, but it does not include a credit component.
BSBY is constructed using aggregated and anonymised data based on transactions of commercial paper, certificates of deposit, US dollar bank deposits and short-term bank bond trades, reflecting banks’ marginal funding costs.
BSBY is administered by Bloomberg Index Services Limited, a subsidiary of Bloomberg LP. Last month, Bloomberg confirmed that BSBY adheres to the IOSCO Principles for Financial Benchmarks.
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“We want to signal our support for credit-sensitive rates alongside SOFR,” said Sonali Theisen, head of FICC electronic trading and market structure at Bank of America. “There’s a lot of work being done on having a rate that looks and feels like LIBOR.”
Last month, Bank of America also issued a USD 1 billion six-month floating-rate note referencing the one-month BSBY index.
Other credit sensitive rates such Ameribor and the ICE Bank Yield Index are also expected to be adopted over time.
The first Ameribor-linked interest rate swap transaction was executed in December 2020.