ISDA spread adjustment

Interest rates - reference rates - LIBOR transition - Financial Conduct Authority - fallback - pricing - credit risk.

LIBOR ceased to be calculated and published at the end of 2021, with the exception of residual synthetic rates, all of which had also ceased by the end of September 2024.

To deal with the transition away from LIBOR, relevant fallback interest rates were identified.

The ISDA spread adjustment related to the calculation of a relevant fallback interest rate on a synthetic basis ("synthetic LIBOR").

The adjustment was added to the synthetic LIBOR rate, to reflect the additional credit risk in IBOR rates.

ISDA spread adjustment is now fixed for EUR, GBP, CHF, USD & JPY

"This spread adjustment is an important part of the overall fallback rate, and reflects a portion of the structural differences between interbank offered rates (IBORs) and the RFRs used as a basis for the fallbacks – IBORs incorporate a credit risk premium and other factors, while RFRs are risk free or nearly risk free...

This spread has now been fixed for all euro, sterling, Swiss franc, US dollar and yen LIBOR tenors, giving firms more information about the exact fallback rate that will be used in the event they don’t complete their transition efforts before cessation or non-representativeness occurs."

ISDA - LIBOR Cessation and the Impact on Fallbacks

The ISDA spread adjustment is an example of a credit adjustment spread.

LIBOR ended in September 2024.

See also

• Benchmarks Regulation
• Credit adjustment spread (CAS)
• Credit risk
• Fallback
• Financial Conduct Authority (FCA)
• IBOR
• International Swaps and Derivatives Association (ISDA)
• Legacy
• LIBOR
• Risk-free rates (RFR)
• Risk premium
• SOFR
• SONIA
• Synthetic LIBOR
• Transition risk

Other resources

• The end of LIBOR - Press release - Bank of England - 1 October 2024

• ISDA - LIBOR Cessation and the Impact on Fallbacks