World Bank sells record-breaking £1.25bn bond using ‘Libor-killer’ benchmark
The World Bank has sold a £1.25bn bond using Sonia, the Bank of England-backed interest rate benchmark designed to replace the scandal-battered Libor.
The record-size sale, which arrived shortly after the alternative benchmark’s first use by a lender, marks its continued emergence as an alternative to Libor, the London Inter-bank Offered Rate, its tarnished forerunner.
In June, the European Investment Bank sold the first bond linked to Sonia, the Sterling Overnight Index Average, which was also used by Lloyds in a £750m sale of three-year debt earlier this month.
Global regulators have called for financial markets to move away from Libor and its equivalents, calling on them to switch towards ‘risk-free rates’ (RFRs).
Read more: City regulators demand banks and insurers reveal Libor escape plans
Libor was the source of one of the banking industry’s biggest-ever scandals, the fallout from which is still ongoing, after banks were found to have manipulated rates for profit. It is set to become defunct in 2021, and many firms are currently moving to convert contracts and systems which reference newer benchmarks such as Sonia.
Several issuers including the World Bank have used the Sofr benchmark, which is tied to US dollar transactions, as a substitute.
The World Bank has now sold £1.25bn of five-year debt, which will pay a coupon pegged at 0.24 per cent above Sonia.
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Andrea Dore, World Bank head of funding, said the sale had “surpassed our expectations”.
“This trade supports our goals of developing the market for Libor alternatives and builds on our first Sofr issuance last month,” she said.
Last week, top UK regulators wrote to banks and insurers, calling on chief executives to seek “assurance” that senior managers and boards understood the transition.