IBA, TradeWeb Investigate Libor Alternative

Tradeweb Markets and ICE Benchmark Administration (IBA) are introducing the daily Tradeweb ICE Constant Maturity Treasury Rates, which have been designed to provide market participants with a daily overview of US Treasury yields for standard maturities and thus potentially becoming another alternative benchmark to Libor.

The rates are based on transactions executed and/or quotes provided for US Treasuries on Tradeweb’s electronic trading platform. The companies say they are providing the rates to help market participants meet their valuation, risk management and potential benchmarking needs.

The new rates will be based on an interpolated US Treasury yield curve from which standard maturity dates and associated US Treasury yields will be published. They will be published for maturities of 1, 2, 3 and 6 months, and 1, 2, 3, 5, 7, 10, 20 and 30 years, all of which relate to the maturities of frequently issued US Treasury securities.

The rates will be sourced from a constant maturity yield curve produced by the companies, which will be constructed using a curve-smoothing quasi-cubic Hermite spline model. The inputs used to generate the curve and associated rates will be based upon volume-weighted average prices, and associated yields, for transactions in on-the-run Treasury securities (i.e. the most recently auctioned US Treasury securities) that took place on the Tradeweb Platform over the course of a seven-hour window between 8:00AM and 3:00PM EST.

If there is insufficient trading activity in a particular on-the-run security on the Tradeweb Platform, then dealer bid-offer quotes displayed electronically to institutional clients on the platform sourced between approximately 8:00AM Eastern and 3:00PM Eastern time will be used as input data to build the curve.

Tradeweb and IBA say they have conducted an 18-month period of testing on the new rates and have released a paper setting out the test result.

As a result of the paper, the two firms are now asking market participants and stakeholders to review and provide feedback on the new rates and the proposed calculation methodology by September 18, 2020. They add they intend to consider and take account of this feedback before finalising the methodology used and before launching the rates for use by market participants in financial contracts.

Colin Lambert

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