US Banks Execute First BSBY-Linked Swaps Transaction

Bank of America and JPMorgan Chase entered into a $250mn one-year basis swap with one side tied to BSBY, the other to SOFR.

Bank of America and JPMorgan Chase have completed the first swaps trade tied to BSBY (Bloomberg Short Term Bank Yield), a new credit sensitive rate meant to help replace LIBOR.

According to Bloomberg, the banks entered into a USD 250 million one-year basis swap with one side tied to BSBY, the other tied to SOFR.

SOFR is the Federal Reserve’s preferred replacement rate, but it does not include a credit component.

BSBY is constructed using aggregated and anonymised data based on transactions of commercial paper, certificates of deposit, US dollar bank deposits and short-term bank bond trades, reflecting banks’ marginal funding costs.

BSBY is administered by Bloomberg Index Services Limited, a subsidiary of Bloomberg LP. Last month, Bloomberg confirmed that BSBY adheres to the IOSCO Principles for Financial Benchmarks.

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“We want to signal our support for credit-sensitive rates alongside SOFR,” said Sonali Theisen, head of FICC electronic trading and market structure at Bank of America. “There’s a lot of work being done on having a rate that looks and feels like LIBOR.”

Last month, Bank of America also issued a USD 1 billion six-month floating-rate note referencing the one-month BSBY index.

Other credit sensitive rates such Ameribor and the ICE Bank Yield Index are also expected to be adopted over time.

The first Ameribor-linked interest rate swap transaction was executed in December 2020.

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