The end of 2021 saw the passing of LIBOR as scheduled. The discredited reference rate quietly disappeared, but not quite.
Since some legacy issues have still yet to be converted to new money market rates, despite having plenty of warning, and some recent issuance still puzzlingly referenced LIBOR, we continue to have ISDA ‘fallback’ LIBOR which has maintained order in these issues. The US has extended their final deadline until June 2023 whilst putting in place controls to prevent new issuance or amendments except for risk management purposes. Our new rates continue to work well, SOFR in the US and SONIA here (which immediately repriced upwards after the Bank’s recent hike) have all the credibility that LIBOR lost.
The usual flurry of forecasts for what 2022 will bring had a wide range of outcomes to consider. It does appear that our current virus wave has every chance of seeing the pandemic move on to endemic and most economies have recovered to exceed pre pandemic levels. Whilst no-one seems to be looking for runaway growth, after a pause in Q1 economies look to be set for solid if unspectacular growth over the year. China’s zero Covid-19 strategy is a concern if this leads to a recurrence of the worst of the supply chain disruption and a shortage of labour, both skilled and unskilled, in many developed economies will remain a limiting factor.
Inflation remains the main cause for concern as it hits a 25-year high across the wealthiest economies. The rising cost of living is becoming a reality for many and increases the pressure on central banks to act and raise interest rates, although the effect of these hikes on containing these costs remains unclear. Some direct language from both voting and non-voting Federal Reserve members has shifted the consensus towards a path of four hikes in 2022.
Although the new issue machine slowed over the holiday period it swung back into action at the beginning of the year as corporate treasurers look to lock in current rates possibly meaning that issuance is more front end loaded but overall expected to be at similar levels to last year. Credit spreads had a steady year, most gauges ending not far off where they started having traded in a narrow range with remarkably low volatility.
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