Interest Rates

Sterling interest rate swap curve Interest rates stay low while the swap curve steepens

GBP LIBOR vs. SONIA interest rate derivatives (US$ bn notional) SONIA adoption continues with higher notional volumes than GBP LIBOR

Interest Rates & Banks - Market observation per 31 March 2021 -

Negative interest rates avoided as BoE maintains position; GBP swap curve steepens

  • In the Bank of England’s (BoE) recent Monetary Policy Committee (MPC) meeting on March 17th, the BoE also announced its position to maintain rates at 0.1%.
  • This follows the February MPC where the BoE warned lenders to be prepared for negative interest rates in July, albeit based on a further economic downturn scenario.
  • The GBP IRS curve steepens and increases as per the direction that started in January 2021.
  • The increase of the curve indicates increased investor confidence on the back of the COVID-19 vaccine programmes and the US fiscal stimulus.

Sterling RFR (SONIA) market liquidity remains steady while Q1 ’21 showed a rebound of GBP LIBOR referenced market liquidity

  • YTD 2021 SONIA notional totalled US$ 4.4 trillion as compared to US$ 5.2 trillion notional of GBP LIBOR referenced trades; this shows a rebound of GBP LIBOR liquidity as 2020 YTD figures showed 30% higher SONIA liquidity versus LIBOR (US$ 15.6 trillion as compared to US$ 12.0 trillion.).
  • This may have been impacted by the November 2020 postponement of the USD transition deadline to mid-2023 by the US working Group (ARRC) as USD derivatives continue to dominate global volumes.
  • The UK’s IBOR transition and adoption of SONIA as a reference rate remains well ahead of other global RFRs such as the SOFR (USD), SARON (CHF), TONA (JPY) and €STR (EUR.).