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Libor challengers: ARRs get a boost in August

August, typically a slow month for capital markets, was a fruitful one for alternative reference rates (ARRs) to Libor.


Barclays became the latest issuer of cash instruments linked to Sofr, the Federal Reserve’s preferred alternative to Libor, when it sold an unusually large asset-backed commercial paper (ABCP) deal from its flagship Sheffield Receivables Corp ABCP shelf on August 24.

The bank, which acted as one of the lead banks on the US government-sponsored enterprise Fannie Mae’s $6 billion three-tranche Sofr-linked deal in July, was the second bank to sell a Sofr-linked deal – only days before, Credit Suisse sold a $100 million, six-month Yankee certificate of deposit.

Banks are beginning to issue Sofr-linked in part to be seen as supporting the Alternative Reference Rates Committee, set up by the Fed, which has endorsed the rate as its preferred Libor replacement, and of which the big hitters are a part.

Credit Suisse’s deal was aimed at both setting a precedent, as well as giving the bank an additional hedging tool for rate risk, according to a person familiar with the deal.

Barclays’ ABCP deal, at $525 million – and in late August at that – surprised even the team behind the trade.

“Our expectation from an issuer’s perspective was: it’s late August.

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