Libor My basic theory of Libor, the London interbank offered rate, is that it is a function call. You want to have a contract that specifies a floating interest rate, one that changes (say) every quarter based on prevailing interest rates. One way to do that is specify in the contract that, each quarter, you will observe some market data and call some banks for quotes and do some calculations and produce a number, the number being the interest rate. The contract could spell out the entire methodology to take some facts about the world and convert them into an interest rate. But the way Libor works in contracts is mostly not like that. The way Libor works in contracts is mostly by saying "the interest rate will be whatever Libor says it is." (Plus a fixed spread.) Exactly how that is expressed varies, but it is generally expressed by reference to some source, either the official administrator of Libor (formerly the British Bankers' Association, now Intercontinental Exchange Benchmark Administration) or a Bloomberg or Reuters page that displays the official Libor.[1] And then ICE is in charge of figuring out what Libor is, and Bloomberg and Reuters are in charge of getting that information and displaying it, and your contract can just take it as a given. To write the contract, you don't have to know the exact mechanics of how ICE calculates Libor by polling banks about the interest rate at which they can do unsecured short-term borrowing. If ICE adds banks to the panel that it polls, or deletes banks, or changes the wording of the question it asks them, or tells them to use more transaction data in answering the question, or changes its method of topping and tailing and averaging the answers—all of that just flows through to your contract automatically. You call the Libor function, it returns a value, you use the value, and you don't really care how the function operates internally. The people who maintain the function can tinker with it, and you won't even notice. We are in the middle of a long and boring effort to get Libor out of contracts. Contracts—floating-rate loans, interest-rate derivatives, etc.—are no longer supposed to use the Libor function. The main reason for this change is that it turns out that the way that Libor was calculated, during and shortly after the 2008 financial crisis, was pretty bad: The BBA polled banks about their cost of short-term unsecured borrowing, and the banks lied about it, so Libor was, in an important sense, "wrong."[2] A secondary reason for the change is that the eurodollar markets used to calculate Libor are not as active and important as they once were, so even a more honest calculation of Libor—the kind that ICE does now—may not reflect "true" interest rates the way Libor used to. And so regulators want banks and derivatives traders to stop using Libor and start using some other, more market-based interest-rate reference. In the U.S. this is mainly SOFR, the Secured Overnight Financing Rate, which is calculated by the New York Fed based on actual transaction data. There are various problems with this transition, but the simplest and dumbest one is that there are a lot of contracts that say "the interest rate will be Libor" (plus a spread), and you have to go find all of them and get the contracting parties to agree to cross that out and write in "the interest rate will be SOFR" (plus a spread) or whatever. That is hard administratively—you have to find the contracts, you have to get the two parties to pay attention, etc.—but there is also an economic problem. Libor and SOFR are different; they measure different things; Libor is unsecured and SOFR is secured; SOFR is overnight and Libor comes in longer tenors. If your loan pays interest of six-month Libor plus 150 basis points, will it now pay the six-month SOFR futures rate plus 175 basis points, or six months of daily SOFR compounded in arrears plus 168 basis points, or what? The borrower will say "let's change to SOFR but not increase the spread," the lender will say "let's change to SOFR and increase the spread a lot," there will be some economics to be worked out, and there's no guarantee that everyone will agree. And so banks are going out and trying to renegotiate trillions of dollars of contracts to replace Libor with something more sensible, but they kind of have to do that one client at a time. The simple dumb solution would be to answer these questions, once and for all, by changing the internal mechanics of Libor. ICE could just wake up one day and say, "We will keep reporting Libor, but instead of being based on a panel of banks, it will be SOFR plus 20 basis points, that's just what Libor means now."[3] And then if your contract says "our interest rate will be Libor," you will go to the Bloomberg or Reuters page that reports Libor, and it will keep reporting Libor, and the function will produce an answer just like before. But now the guts of the function will be based on SOFR—the good rate, the one regulators like, the one with a future—rather than the old and discredited method of calling up banks for their unsecured lending rates. In practice it would be a bit tough for ICE to do this, and people who use Libor and don't like how ICE answers the economic questions would get mad and sue it. On the other hand … New York could do it? New York Governor Andrew Cuomo has proposed legislation that would help prevent hundreds of billions of dollars of financial contracts from descending into chaos when the London interbank offered rate expires. Provisions to help troublesome Libor-linked contracts switch to replacement rates are contained in Cuomo's state budget plan, which was published on Tuesday. Bankers, investors and regulators see such proposals as crucial to ensuring that a large swath of the global financial system isn't disrupted. … As home to the world's biggest financial center, much of the debt falls under New York law. ... The U.K. hasn't faced the same complications around sterling Libor, partly because of its different exit strategy. Proposals to keep publishing a "synthetic" Libor number that doesn't require trading data from panel banks would help legacy contracts that can't transition to avoid a cliff-edge scenario at the end of 2021, when the U.K. benchmark will likely retire. In New York, the bill would allow contracts to instead use the replacement rate recommended by the Fed Board, New York Fed, or the ARRC.
Lots of financial contracts are governed by New York law, so the New York legislature can, within some limits, change what those contracts mean. Cuomo's budget includes an article on "Libor Discontinuance," which says (section 18-401, page 237) that "On the Libor replacement date, the recommended benchmark replacement shall, by operation of law, be the benchmark replacement for any contract, security or instrument that uses Libor as a benchmark," unless there is a different fallback provision in the contract. If you trace through the defined terms, what that means is basically that when Libor stops publishing, any contracts that use Libor will automatically instead use a different function. The different function will be whatever is recommended by the Fed,[4] which is administering the Libor transition, and will presumably be (1) SOFR, (2) termed out in some way (using futures curves or compounding to compute a longer-term rate from overnight SOFR), (3) plus a spread (to reflect the difference between secured and unsecured rates). The law doesn't choose what the function will be; it leaves it up to the Fed. This is actually pretty similar to the U.K.'s "synthetic Libor," though the U.K. approach is a bit more direct: The term began circulating in the leveraged loan and floating rate bond markets after the UK government announced in late June 2020 that it intends to amend the UK regulations of benchmark interest rates to give the Financial Conduct Authority ("FCA") enhanced powers, including the power to select a new calculation methodology to any benchmark. This includes the power to direct the administrator of LIBOR to change the methodology of LIBOR if the FCA determines that the current LIBOR methodology (i.e., polling of panel banks) is no longer representative of the market and if it would be both more appropriate and feasible to change to an alternative methodology. This new methodology would result in a new interest rate being published as the "screen rate" instead of LIBOR. In other words, the Intercontinental Exchange intends to publish a new rate on the same screen and in the same location on the screen where it had previously published LIBOR. However, it is important to understand that, as envisioned by the FCA, this new rate would not replicate LIBOR through some synthetic calculation. Rather, in the accompanying FAQs the FCA explains that the new methodology would follow the market consensus that emerges on how to calculate fair alternatives to LIBOR. For most currencies, this will be a risk-free rate chosen by the applicable LIBOR currency area, adjusted for the relevant term of the contract, and with a fixed credit spread adjustment added. In other words, for the USD LIBOR market, "synthetic LIBOR" would likely be SOFR plus a modifier.
The U.K. approach would directly change what shows up on the Libor screen. Contracts wouldn't have to change at all; they'd continue to call the Libor function, but by U.K. law that function would now work differently. The New York approach would just automatically change all the contracts written under New York law. The contract—the piece of paper documenting the trade—would still say "the interest rate is Libor," but lawyers would know that, as a matter of law, you have to read those words to mean "the interest rate is SOFR plus a spread." Nobody thinks any of this is a good solution. Here is a speech from last March by Edwin Schooling Latter of the U.K. FCA, warning people that synthetic Libor is a terrible idea, because "parties who rely on regulatory action enabled by this legislation, will be giving up their control over the economics of their contracts." Much of the proposed New York legislation is about exempting contracts from the law if the contract parties pick some other fallback, some other way to get around Libor. Obviously it is better for each contract to be carefully renegotiated to reflect the economic intent of the parties, rather than some dumb one-size-fits-all approach imposed by Albany. But that is easy to say, and hard to do. What is the economic intent of the parties? Often they have different intents: Borrowers want to pay a lower rate, lenders want to get a higher rate, etc. Often they have no particularly clear view on what sort of interest rate they want and how it should be calculated. That was why they used Libor, why they called some externally administered function and let someone else give them a number for their interest rate. That number was widely accepted, it was the "normal" number, and that's what they wanted; they just wanted whatever the interest rate was. For those people, sure, whatever, let New York law tell them to use what the New York Fed thinks the interest rate is. They want someone else to tell them a number. Why not do that? Bond pricingBloomberg's Tracy Alloway points out a fun research note by Eric Jacobson and Maciej Kowara of Morningstar about bond pricing. Morningstar looked at securities filings by bond mutual funds to see how they valued the bonds in their portfolios. Lots of bonds don't trade that often, so it is not always clear what they are worth, but mutual funds have to mark their assets to market every day. Morningstar explains: Whereas a bank with loans on its balance sheet may not need to know their precise prices every single day, investment funds with so-called daily liquidity features can't function without them. Every time an investor purchases shares in a fund or chooses to sell some—activities that open-end mutual funds are required to facilitate every day—the transaction has to be done based on the value of the whole portfolio in which those shares represent ownership. In effect, it takes something that would otherwise be an accounting entry back into the real world. There are immediate consequences: If the security prices used to calculate a portfolio's value are higher than they should be, investors selling shares will get more than they're entitled to, while those buying shares will wind up paying more, and vice versa. As such, one element of an asset manager's job is to act as a referee for investors coming in and out. That means assuring every investor that even if a fund isn't buying and selling securities in its portfolio every time investors buy or sell fund shares, the prices at which they do so are fair.
This is the dreaded "liquidity mismatch" of bond mutual funds: You can put money into the fund or take it out every day, but the underlying bonds might trade much less frequently. Funds will use several competing pricing services, or perhaps call brokers for quotes, to determine the prices of bonds that don't trade very much. Sometimes they will get different results. In good times, for good bonds, the differences are usually small. Morningstar looked at data from September 2019 and found that the average price spread—that is, the average difference between the highest and lowest mark that different mutual funds had for any particular bond—was about 0.30% of the bond's price for bonds rated AA and AAA. At lower ratings it got a little wider, but not that much wider; the average spread was 0.42% for bonds rated BB and 0.55% for bonds rated B. (At CCC ratings and lower it was much wider, 1.5%.) There are outliers, though, with "numerous examples for which the difference between the minimum- and maximum-observed prices for the same bonds occurred well into the high single digits." Even in normal market conditions, there will be highly rated corporate bonds that one mutual fund marks at 95 and another marks at 102. If you buy the first mutual fund, you are getting more of that bond for your dollar than if you buy the second. Kinda weird. But of course in turbulent times the marks get wider. Alloway: What's really interesting in all this, however, is just how much larger these pricing discrepancies can grow in times of stress. Morningstar compares price dispersion in September 2019 and March 2020 — the worst of the big market sell-off — to show just how uncertain things got. "By the end of March 2020, huge swaths of corporate debt were being priced all over the map from one firm to another, with large groups of bonds showing price-spread percentages in ranges of between four and nine percentage points and still numerous outliers pricing even wider than that," it concluded.
I say "of course in turbulent times the marks get wider," but maybe that is not actually obvious. You could have a model like: - In boring normal times, investors buy and hold bonds forever, they don't trade very much, pricing is a matter of guesswork, and different mutual funds will have somewhat different marks for their bonds.
- In turbulent stressful times, some investors will be forced to sell all their bonds while others will be greedily hunting for bargains, there are lots of trades, pricing is a simple matter of looking at the last trade, and every mutual fund will have the same marks for their bonds.
That model is not right! Instead, in boring normal times, bonds trade a little and pricing is partly objective and partly a matter of guesswork; in turbulent stressful times like March 2020, the bond market seizes up, everyone is afraid to trade, and bond pricing is much more a matter of guesswork. Or you could put the causality the other way: In turbulent stressful times like March 2020, nobody knows what bonds are worth, because the world is uncertain and lots of companies might default horribly or recover quickly, so there are genuine differences of opinion as to fundamental value. If I own a bond that I think is worth 99.6875 and you want to acquire it and are willing to pay 99.625, there is some chance of us working out a trade. If I own a bond that I am sure is money-good and worth 100, and you think it is distressed and want to take it off my hands for 60, we are just not going to trade. So I will keep marking it at 100 and you will keep marking it at 60.[5] Back in March 2020, we talked a fair amount about bond exchange-traded funds. One thing that happened with bond ETFs is that they traded every day and had clear, market-determined prices. Another thing that happened is that some of those prices became pretty disconnected from the ETFs' net asset values, the values of their underlying bonds, as reported by the ETFs based on pricing services. There were competing explanations of these phenomena. One theory is that ETFs were bad: Through some combination of distressed sellers and weird market structure, they were trading at way below their actual value. The other theory is that the NAVs were bad: The ETFs, which traded in a liquid public market (the stock exchange), were trading at their actual value—the value a willing buyer and seller agreed on—but their valuations of their underlying bonds were way off, because those bonds didn't trade. On the latter theory, if an ETF with a net asset value of $100 per share traded at $80 per share, that just meant that it was marking its bonds too high, and they were really worth $80. There is probably some truth to both theories, but the fact that in March 2020 bond mutual funds disagreed so much about what bonds were worth suggests that their marks weren't all that accurate, and that maybe the ETF prices were more accurate than the bond marks. BlackRock Bitcoin Oh yeah: BlackRock Inc. is adding Bitcoin futures as an eligible investment to two funds, the first time the money manager is offering clients exposure to cryptocurrency. The world's largest asset manager filed updated prospectuses for a pair of funds including cash-settled Bitcoin futures among assets they're permitted to buy. The filings for BlackRock Strategic Income Opportunities and BlackRock Global Allocation Fund Inc. appeared on the U.S. Securities and Exchange Commission website Wednesday. Derivatives using cash settlement do not require delivery of the underlying asset. … Chief Executive Officer Larry Fink said in a 2018 interview that the firm's clients weren't interested in owning crypto. But more recently, executives have shown an increased openness to the asset, which is sometimes compared to digital gold. … Rick Rieder, BlackRock's chief investment officer for global fixed income, said in a Bloomberg Television interview last year that there's a clear demand for Bitcoin and that "it's going to be part of the asset suite for investors for a long time."
There is a range of ways to get Bitcoin exposure. Here are very Bitcoin-y ways to get Bitcoin exposure: Here are some much less Bitcoin-y ways to get Bitcoin exposure: - Buy Bitcoins on a regulated exchange and keep them with a U.S.-regulated custodian.
- Buy a mutual fund, ETF, trust or whatever that invests in Bitcoins.
- Buy cash-settled Bitcoin futures that go up in down with the value of Bitcoin but do not ever require you to take delivery of any Bitcoins.
Here is I think the very least Bitcoin-y possible way to get Bitcoin exposure: - Buy a BlackRock Global Allocation Fund that may in the future put a small portion of its money in cash-settled Bitcoin futures.
In general, the more Bitcoin-y an approach is, the fewer people it will appeal to. Only a select few enthusiasts are going to raise chickens with the heat byproducts of their Bitcoin mining; Satoshi Nakamoto himself probably wouldn't dig through garbage for a small chance of finding a Bitcoin hard drive. But putting 5% of your retirement fund into a blandly named BlackRock fund that puts 1% of its money into cash-settled Bitcoin futures? Sure, whatever, good to diversify a little, get some exposure to the crypto that all the kids are talking about. I can't think of a more boring way to buy Bitcoin than this, and I can't think of anything better for Bitcoin than becoming boring. Things happenCitigroup to Cut Bonuses for Top Executives After U.S. Reprimand. Chinese Telecom Carriers Ask NYSE to Make Another U-Turn on Delisting. Mountain of Small Loans Looms Over Europe's Pandemic-Hit Banks. Can a Tiny Hedge Fund Push ExxonMobil Towards Sustainability? Aramco Omits Carbon Data for Up to Half Its Real Climate Toll. Private equity's new bet on sport: buy the league. Tyson Foods to Settle Price-Fixing Claims. People are worried about stock buybacks. Baupost's Seth Klarman compares investors to 'frogs in boiling water.' The Party Structure of Mutual Funds. Joe Biden's Dogs Shepherd In New Era of Presidential Pets at the White House. If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! [1] Simply Googling around some credit agreements finds references like a rate determined "by reference to the Reuters Screen LIBOR01," the rate "which the British Bankers' Association fixes as its LIBOR rate as of 11:00 a.m. London time," "the Intercontinental Exchange Benchmark Administration Ltd. ('ICE,' or the successor thereto if ICE is no longer making a London Interbank Offered Rate available) ('ICE LIBOR') rate for the equivalent Interest Period as published by Bloomberg," etc. Under the 2006 ISDA Definitions, which govern most interest-rate derivatives, there are "a choice of four 'USD LIBOR' rates from which to choose: USD-LIBOR-BBA (which references Reuters Screen LIBOR01 Page), USD-LIBOR- Bloomberg (which references Bloomberg Screen BTMM Page under the heading 'LIBOR FIX BBAM'), USD-LIBOR-LIBO, and USD-LIBOR-Reference Banks." The last is pretty much "we'll call up banks ourselves," and is terrible; everyone's first choice is to reference a Reuters or Bloomberg screen. [2] In another important sense Libor is just Libor, and cannot exactly be wrong: Contracts that use Libor don't say "the interest rate will be banks' cost of unsecured short-term borrowing, which we will calculate by looking at Libor"; they say "the interest rate will be Libor." The contracts *worked*; they produced *values*; the parties to the contract didn't have to sue each other because Libor was wrong. They could sue the banks who lied about Libor, maybe, but that's a separate issue. [3] This is very dumb and you wouldn't actually do it that way, but Bloomberg tells me that three-month Libor right now is about 0.22% and SOFR is about 0.06%, so about a 16-basis-point difference; I rounded to 20 just to put a round number in the text. In the real world you'd want three-month Libor to reflect some sort of three-month SOFR, based on a futures curve or compounding or something, plus some spread. [4] Strictly, the "relevant recommending body," which "shall mean the Federal Reserve Board, the Federal Reserve Bank of New York, or the Alternative Reference Rates Committee, or any successor to any of them." The ARRC is the body that the Federal Reserve Board and New York Fed have convened to replace Libor. [5] I mean, you won't own it, so you won't mark it at all, but I suppose if you already owned some of it you'll mark that down to 60, etc. [6] I can see an argument that this is not very Bitcoin-y, relying as it does on the traditional financial system to wrap your Bitcoins (in a corporate stock) for you. On balance though I think that MicroStrategy's leveraged and amusing Bitcoin investing is in fact quite Bitcoin-y. | 
◂‹〖DownLoad〗 2020 Falling Full Movie Online released 2020. story: John Peterson lives with his partner Eric and their adopted daughter in ...
Post a Comment