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Glossary

LIBOR

Category — Rates
LIBOR (abbreviation for London Interbank Offered Rate), as the name implies, it’s the interest rate at which the largest banks in London are ready to provide unsecured loans to each other for various periods (overnight, week, month, 2 months , 3 months, 6 months, 1 year). It’s calculated for five reserve currencies: USD, GBY, EUR, JPY, CHF. Accordingly, LIBOR is a group of 35 interest rates (for each term for each currency). Until 2013, LIBOR was also calculated for another several currencies (SEK, DKK, CAD, AUD, NZD) and several terms (2 weeks, 4, 5, 7, 8, 9, 10 and 11 months).

LIBOR is considered to be the benchmark short-term interest rate and benchmark for many instruments in the financial market, including bonds and derivatives. However, in 2008, during the global financial crisis, the LIBOR scandal erupted. It was revealed that banks entered into a cartel agreement and manipulated the value of the rate to create favorable conditions for themselves. This became possible due to a conflict of interest: they simultaneously participated in the LIBOR calculation and used the rate in their operations. Participants in the panel of banks were not obliged to conclude transactions on the interbank market and issue loans to each other at a specified rate. The LIBOR rate was supposed to reflect the state of the interbank lending market, although this market was much smaller than the markets where LIBOR was applied as the basis for price formation (for example, the derivatives market). Therefore, banks manipulated the rate in such a way as to improve their positions on third-party instruments. As a result, the British Banking Association ceased to administer LIBOR, from that moment the ICE Benchmark Administration is responsible for compiling the methodology, calculating and publishing LIBOR values. Also, there were adjustments made to the methodology and the list of banks participating in the calculation.

LIBOR is calculated as the arithmetic average of the interest rates of all banks, excluding the highest and lowest rates. The survey involves representatives of major banks (Lloyds Bank, Barclays, HSBC, UBS, Deutsche Bank, JP Morgan, The Royal Bank of Scotland, Societe Generale, Bank of Tokyo-Mitsubishi UFJ, Citibank, Mizuho, Credit Suisse, Rabobank, Santander, Royal Bank of Canada, Bank of America, BNP Paribas, Credit Agricole CIB, SMBC, The Norinchukin Bank). The resulting value is rounded to 5 decimal places and published at 11:55 am London time.

LIBOR is expected to be replaced by other interest rates after 2021 (e.g. SOFR for USD, SONIA for GBP). You can read more about the LIBOR reform at the link.

All 35 LIBOR rates are available on the Cbonds website, the values are published with a weekly delay. Information on them can be found in the "Indices" – "Index Search" section. LIBOR is located in the Money Market group, specified by the Interest rates subgroup. More information on LIBOR rates is available on the specific index page (for example, 3M LIBOR USD).

Floating rate bonds are often linked to LIBOR. On the Cbonds website this information is reflected in the “Coupon rate” field in the “Cash flow parameters” block. An example of a floating rate bond, benchmarked for 3-month LIBOR in US dollars: https://cbonds.com/bonds/413417/ .
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