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 - Market observation per 21 May 2021 -

BoE maintains interest rate position at 0.1%; GBP swap curve steepens

  • The BoE’s unanimously voted to maintain rates at 0.1% following the early May MPC meeting.
  • Following speculation and BoE warnings to be prepared for negative interest rates in February, current market sentiment is focused on the timing expectation for a potential rate hike. This follows the significant rise in inflation rates since March when pandemic restrictions were eased.
  • 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 eased market restrictions and ongoing COVID-19 vaccine programmes.

Sterling RFR (SONIA) market liquidity bounces back in Q2 as the Q1 ’21 relative increase of GBP LIBOR referenced market liquidity did not continue after February

  • YTD 2021 SONIA notional totalled USD 5.5 trillion as compared to USD 6.4 trillion notional of GBP LIBOR referenced trades.
  • The Q1 ’21 rebound of GBP LIBOR liquidity versus SONIA did not carry on into Q2 ’21 as QTD volumes are almost equal (USD 1.18 trillion notional of GBP LIBOR, USD 1.13 trillion notional of SONIA).
  • Following the hike of GBP LIBOR liquidity in Q1, SONIA adoption and market liquidity is only expected to increase throughout the year.
  • 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).