Supporting the LIBOR transition

Supporting the market

By the end of 2021 GBP LIBOR will most likely be replaced by SONIA (Sterling Overnight Index Average) as the Risk-Free Reference Rate for Sterling transactions. However it's not as simple as just replacing one rate with another. To move to a different benchmark - in this case SONIA - there must be a market for that rate.

This is only developed over time as financial institutions, corporate investors and commercial customers start to use this alternative rate and the demand and liquidity in the market grow.

The RBS Group has been among the frontrunners in helping to establish a SONIA market. NatWest Markets have actively supported the liquidity of a Reformed SONIA derivative market since the introduction of the new benchmark in 2018, and has worked with large financial institutions as bookrunner to facilitate SONIA transactions helping to establish a SONIA market.

In March 2019 NatWest Bank Plc launched and priced the first SONIA-linked benchmark issuance for RBSG, issuing a £750m 4-year Covered Bond at SONIA + 60bps.

In June 2019 NatWest delivered the market's first loan referencing the SONIA rate in a pilot with one of our large corporate customers.

Supporting Clients

Client education is a vital part of the transition from IBORs to RFRs. We know that one of the challenges for clients is that SONIA is a backward-looking rate.

To help clients get comfortable with what this means in practice, NatWest Markets have developed a simple calculator to help clients get comfortable with what a SONIA rate means in practice. Clients can use the calculator to see how to use daily realised rates to construct a compounded rate over time. The calculator is available here.