11 Aug Market Insight – LIBOR in Limbo?
By Voya Senior Loan Group
The floating-rate nature of loans is one of the distinguishing features of the asset class. Loans pay a two-part coupon – a fixed credit spread plus a floating market base rate. This base rate has historically been LIBOR, but that may change. The U.K.’s Financial Conduct Authority (FCA) has recently set the market abuzz with its announcement that it will no longer require banks to submit quotes for LIBOR rates in sterling by the end of 2021. The FCA also recommended that the market stop using LIBOR as a benchmark. This quickly turned to reports declaring the death of LIBOR and headlines clamoring over the uncertain future of LIBOR-pegged financial markets.
We believe that much of this has been overstated or a result of premature speculation.