Currency-Specific FAQs

Explore FAQs about interest rate benchmarks, curves, and market transitions for various currencies.

GBP

What are the implications of the UK government’s plans to align RPI and CPI?

• The UK Government announced in November 2020 that the Retail Price Index (RPI) will align with the Consumer Price Index including housing costs (CPIH) starting from 2030.

• There will be no compensation for index-linked gilt holders, which is estimated to transfer £100bn of value from investors.

How does this impact the wedge?

• CPI swaps are illiquid, so actuarial assumptions typically use the market-implied RPI curve minus a fixed spread.

• The wedge is generally 1% for pre-2030 liabilities and closer to 0-0.1% for post-2030 liabilities.

---

How are SOFR/SONIA curves calculated?

• SOFR and SONIA are compounded daily over the interest period to derive forward rates. For example, a monthly SOFR curve reflects the compounded rate over the month.

---

EUR

What is a EURIBOR curve?

• EURIBOR (Euro Interbank Offered Rate) represents the rate at which Eurozone banks borrow from one another.

• A EURIBOR curve shows rates for different maturities (e.g., 1 month, 3 months, 6 months) and is a benchmark for financial products like swaps and forward rate agreements.

---

USD

How do I navigate the SOFR transition?

• USD LIBOR ceased on June 30, 2023, with derivatives now falling back to SOFR compounded-in-arrears plus a spread adjustment.

• Many loans use Term SOFR, a forward-looking rate, as their fallback. Ensure alignment in loan and derivative contracts to avoid mismatches.

What is the difference between Term SOFR and Compounded SOFR?

• Compounded SOFR: Calculated by compounding daily overnight SOFR rates over a specific period (e.g., quarterly).

• Term SOFR: A forward-looking rate known in advance, similar to LIBOR, making it easier to operationalize.

What is the spread between LIBOR and SOFR?

The recommended spreads between LIBOR and SOFR, based on the ARRC’s five-year historical median, are:

• 11.448 basis points for one-month tenor.

• 26.161 basis points for three-month tenor.

• 42.826 basis points for six-month tenor.

---

BRL

What are the different interest rates in Brazil?

Brazil's financial market uses various benchmark rates, including:

• SELIC: The benchmark interest rate set by the central bank.

• DI (Interbank Deposit Rate): Used for derivatives and fixed income.

---

CAD

What is CORRA?

• CORRA (Canadian Overnight Repo Rate Average) measures the cost of overnight funding in Canadian dollars using government securities as collateral.

• Types of CORRA:

  1. Term CORRA

  2. Daily Compounded CORRA