The Alternative Reference Rates Committee (ARRC) today released a consultation on spread adjustment methodologies for cash products referencing U.S. dollar LIBOR. These spread adjustments are intended for use in USD LIBOR contracts that have incorporated the ARRC’s recommended hardwired fallback language, or for legacy USD LIBOR contracts where a spread-adjusted SOFR can be selected as a fallback.
“A spread adjustment will minimize changes in value that would result from an inevitable switch to SOFR at the point of transition,” said Tom Wipf, ARRC Chair and Vice Chairman of Institutional Securities at Morgan Stanley. “I urge market participants to closely assess the different methodological options and provide feedback, to help the ARRC determine which approach is the most fair and precise.”
