The Association of Corporate Treasurers held an International Treasury Week webinar during May. A session covered market progress on the transition away from IBOR and on to Risk Free Rates (‘RFR’s). Edwin Schooling Latter, Director of Markets and Wholesale Policy gave the Financial Conduct Authority’s update.
Recently, the gap between IBOR rates and the rates intended to replace them have widened. The new ‘Risk-Free Rates’ (RFRs) are, as the name suggests, (mostly) risk-free, whereas IBOR rates (by design) contain information about bank credit risk. In normal times, this spread is small, but in times of stress the gap between these two benchmarks widens.
As the coronavirus piles mounting pressure on businesses with sharply diminished activity levels and falling revenues, many are finding the pandemic is also impacting their FX hedge portfolio.
Without action, companies will be effectively running speculative FX positions at a time of high market volatility.
