The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2022 Euromoney, a part of the Euromoney Institutional Investor PLC.

Libor replacements are untested in a hiking cycle

Interest rate uncertainty may not have added to the complexity of the transition away from Libor pricing, but it has implications for forecasting that will only become clear as rate rises kick in.


Uncertainty around how the secured overnight financing rate (Sofr) will react to interest rate hikes raises the possibility of near-term pricing anomalies and inconsistencies in the commercial loan market, according to Greenwich’s latest commercial lending market insight report.

Nevertheless, Stephen Farrell, audit & assurance partner at Deloitte, says that uncertainty around interest rate rises has not tended to come up as a key consideration on Libor transition between banks and customers.

“Perceived or actual uncertainty over the availability of a Libor rate for the issuance of new products tends be to a greater consideration, notably for corporate customers who perhaps haven’t considered in full how unavailability would impact their interest rate management,” he explains.

Stephen Farrell, Deloitte2.jpg
Stephen Farrell, Deloitte

Another challenge Deloitte has observed is the ability to forecast interest payments due to the backward-looking nature of risk-free rates. If someone took out a loan on six-month GBP Libor beginning December 2021, they would already know how much interest would be due in May 2022, explains Svenja Schumacher, the firm’s assistant director financial advisory.

“A loan on Sonia [Sterling Overnight Index Average], in comparison, would have already captured the two interest rate hikes from December and February through higher daily rates, which are compounded to make up the final rate,” she says.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree