RFRs & Contract changes 

Alternative risk-free reference rates (RFRs) 

RFRs have been identified for all major currencies as an alternative to LIBOR.

Table reproduced from Financial Stability Board website.  

Alternative RFR
US Dollar
Secured Overnight Financing Rate (SOFR)
Secured Treasury repo rate
Sterling Overnight Index Average (SONIA) 
Unsecured wholesale rate
Japanese Yen
Tokyo Overnight Average Rate (TONA)
Unsecured wholesale rate
Euro Short-Term Rate (€STR)
Unsecured wholesale rate
Swiss Franc
Swiss Average Rate Overnight (SARON)
Secured general collateral repo rate

Risk-Free Rate movements in RFRs reflect changes in interest rates, whereas movements in LIBOR reflected both changes in interest rates and bank funding costs. By using a rate that is more closely aligned with actual interest rate movements, you may be better able to manage your interest rate exposures, and not be exposed to sudden spikes in bank funding costs.   

RFRs are overnight rates. Therefore an RFR ‘interest rate’ or ‘coupon rate’ for an interest period will typically be based on an average or a compounding of daily observations of the RFR throughout the interest period and is therefore determined at the end of the calculation period. In contrast, LIBOR was a forward-looking “term” rate that sets the interest rate or coupon rate at the beginning of the interest period. Forward looking RFR term rates are available in the GBP, USD, and Yen markets but their use is limited. In the sterling market UK, Term SONIA may be used for trade finance and export finance facilities but is not intended for wider use in the institutional loan market. In the USD market, Term SOFR may be used for most types of lending facilities and the derivatives used for hedging these facilities. Term SOFR derivatives are not to be used in the inter-dealer market. This means that our pricing of ‘Term SOFR’ derivatives will be different from our pricing of derivatives that reference SOFR compounded in arrears.  

Other interest rate benchmark reform

  • For certain other major IBORs, authorities are encouraging efforts to develop robust RFRs and to make derivatives and other contracts more robust to discontinuation, but it is recognised that transition to RFRs may take longer. For example, authorities in the euro area are promoting a robust RFR in euro short-term rate (€STR) produced by the ECB. With respect to EURIBOR, its methodology has been reformed and its administrator received an authorisation under the BMR in July 2019, which allows its continued use for the foreseeable future.

    In other currency areas, authorities do not at this time think that transition solely to RFRs is necessary and continue to support a multiple-rate approach. Examples include Australia, and, with regard to TIBOR, Japan.

     In addition to LIBOR’s timeline of cessation, the following reference interest rates have specific end-dates as well:

    • CDOR (1, 2 and 3 month tenor) will cease after end-June 2024
    • SOR (1, 3 and 6 month tenors) ceased after end-June 2023
    • SIBOR (1 and 3 month tenors) will cease after end-December 2024
  • Australian benchmark reform

    For the Australian dollar, the key interest rate benchmarks are the bank bill swap rates (BBSW) and the cash rate. Reforms have also been undertaken to enhance the robustness of BBSW.

    The Reserve bank of Australia (RBA) has stated that:

    ‘The critical difference between BBSW and LIBOR is that there are enough transactions in the local bank bill market each day to calculate a robust benchmark. Australia has an active bank bill market, where the major banks issue bills as a regular source of funding, and a wide range of wholesale investors purchase bills as a liquid cash management product’.

    As markets transition from referencing LIBOR to RFRs, there may be some corresponding migration away from BBSW towards the cash rate. This will depend on how international markets for products such as cross-currency basis swaps end up transitioning away from LIBOR.

Things you should know

  • The information in this document might change. This information is published solely for information purposes and is not to be construed as a solicitation, an offer or recommendation by CommBank. The information may be incomplete or not up to date and may contain errors and omissions. It must not be relied upon as financial product advice and is not investment research. As this information has been prepared without considering your objectives, financial situation or needs, before acting on the information you should consider its appropriateness to your circumstances and if necessary, seek appropriate professional advice. We believe that this information is correct at the time of publishing and any opinions, conclusions or recommendations are reasonably held based on the information available at the time of its compilation but no representation or warranty, either expressed or implied, is made or provided as to the accuracy, reliability or completeness of any statement made.