Brian Chappatta, Columnist

The ‘Big Bang’ Shift on Swaps Shouldn't Frighten Anyone

It’s an open question whether there will be short-term price volatility, but even if so, it’s worth it to solidify the transition from Libor.

October 16, 2020 at 10:00 AM UTC

By Brian Chappatta

Brian Chappatta is managing editor of Bloomberg News' leveraged finance and distressed debt teams. He was previously managing editor and team leader of its wealth group. Before that he was a Bloomberg Opinion markets and finance columnist and a bonds reporter for Bloomberg News.

Don’t be alarmed.
Photo Illustration by M. Weiss/NASA/CXC/Getty Images

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If everyone across global financial markets is prepared for a “big bang,” will it truly be a big bang?

That, in a nutshell, is what banks and other institutions exposed to interest-rate swaps on more than $80 trillion in notional debt are about to find out starting this weekend. The secured overnight financing rate, or SOFR, will suddenly replace the effective federal funds rate in valuing these derivatives in what’s seen as a big step forward to leading the financial system away from the London interbank offered rate benchmark that has dominated the lending world for about five decades.