HONG KONG, 08 November 2019. Pengyuan International has today published a Monthly Newsletter on Chinese Financial Institutions, which highlights the agency’s views on the latest development on the LIBOR-SOFR transition. The report is accessible at www.pyrating.com/ResearchPublications/List.

We believe the transformation may encounter two issues as follows:

 

1.     SOFR could provide a more market-driven and transparent benchmark rate to the market but the market still lacks SOFR instruments to map directly to the LIBOR equivalent of various tenors. However, we believe that issuers could benefit from a more transparent pricing mechanism when transitions are completed and the operation of new alternative rates matures.

 

2.     We expect the transitions would be long and complicated, since there are no market practices for conversion, non-standardized spread adjustment formula and inactive adoption of SOFR- linked bonds. The interest rates after transformation could potentially cause some investors with bond maturities beyond the end of 2021 to have uncertainty over the new bond yields.

 

In our view, market participants and local regulation authorities are still looking for better solutions to eliminate confusion and efficient ways to execute transitions. However, regulators may take a longer time to tackle the above-mentioned technical problems in order to smoothen transitions from LIBOR to SOFR.


ANALYST CONTACTS

MEDIA CONTACT

OTHER ENQUIRIES

Primary Analyst

Cyrus Chan

+852 3615 8319

cyrus.chan@pyrating.com


media@pyrating.com

contact@pyrating.com

Secondary Analyst

Stanley Tsai, CFA

+852 3615 8340

stanley.tsai@pyrating.com




Committee Chair

Tony Tang

+852 3615 8278

tony.tang@pyrating.com




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