Cost push and ISDA spread adjustment: Difference between pages

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


In relation to inflation, cost push is inflation caused by an increase in costs.
LIBOR will cease to be calculated and published at the end of 2021.


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


:<span style="color:#4B0082">'''''Inflation - we now have both demand pull and cost push'''''</span>


:"In terms of how current inflationary trends differ from the causes of previous periods of high inflation, John Whittaker, economist at Lancaster University Management School, observes that energy prices were also a major driver of price rises in the 1970s.
The adjustment is added to the synthetic LIBOR rate, to reflect the additional credit risk in IBOR rates.


:'However, demand that was suppressed by people being unable to work during the pandemic has been released, which means we now have both demand pull and cost push,' he explains.


:'The latter is not just down to rising prices – it has been exacerbated by supply chain bottlenecks.'
:<span style="color:#4B0082">'''''ISDA spread adjustment is now fixed for EUR, GBP, CHF, USD & JPY'''''</span>


:''The Treasurer, Issue 1 of 2022 - March 2022 - p10.''
:"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.




== See also ==
== See also ==
* [[Cost-push inflation]]
* [[Benchmarks Regulation]]
* [[Demand-pull inflation]]
* [[Credit adjustment spread]] (CAS)
* [[Inflation]]
* [[Credit risk]]
* [[Supply chain]]
* [[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]]
 
 
==External link==
 
[https://www.isda.org/2021/03/05/libor-cessation-and-the-impact-on-fallbacks/ ISDA - LIBOR Cessation and the Impact on Fallbacks]


[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:The_business_context]]
[[Category:Investment]]
[[Category:Long_term_funding]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]
[[Category:Financial_products_and_markets]]
[[Category:Financial_products_and_markets]]

Revision as of 15:59, 28 July 2021

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

LIBOR will cease to be calculated and published at the end of 2021.

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


The adjustment is 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.


See also


External link

ISDA - LIBOR Cessation and the Impact on Fallbacks