Bloomberg announced that the Bloomberg Short-Term Bank Yield Index (BSBY) is now available for use as a reference in financial benchmarks in the U.S. loan market.  BSBY includes both a term structure and systemic credit-sensitive spread, which may be used to support the market‘s transition from LIBOR to risk-free rates, such as SOFR.  Bloomberg began publishing BSBY on an indicative basis for the purposes of illustration, analysis and collection of market feedback on October 15, 2020.

Over the six-month period during which BSBY was published on an indicative basis, Bloomberg received positive feedback on the sensitivity of the rate and robustness of the methodology from market participants, indicating that BSBY meets their needs as an alternative replacement rate.

“Now that BSBY is available for use in the U.S. loan market, we will continue exploring the introduction of products that may use BSBY as a benchmark,“ said Steve Berkley, CEO of Bloomberg Index Services Limited (BISL). “We‘re encouraged by the responses we’ve received from financial institutions and corporations on this approach; in particular, that the availability of BSBY’s credit-sensitive rate is an important milestone in helping them move away from LIBOR and meet regulatory timelines.”

BSBY is available as a standalone rate and can also be used as a supplement to Term SOFR.  In addition to BSBY, Bloomberg provides an array of tools and complementary offerings to help market participants transition away from legacy IBORs, including calculating and publishing term and spread adjustments for the fallbacks that ISDA intends to implement for certain IBORs.

“There is strong demand for a rate that has a term structure and credit component,“ commented Peter Tchir, Head of Macro Strategies at Academy Securities. “BSBY is a big step toward incorporating traded rates across a variety of bank issuers to establish a realistic benchmark for transactions; the design fixes a lot of issues and makes it a compelling  alternative as clients prepare for LIBOR transition .“

BSBY will be calculated daily and published at 8 AM ET, using the prior day’s transaction data, on a T+1 basis.  The index can be accessed via the Bloomberg Terminal, and will be posted publicly on Bloomberg.com on a delayed basis.  The index is available for 5 tenors: overnight {BSBYON Index <GO>}, 1-month {BSBY1M Index <GO>}, 3-months {BSBY3M Index <GO>}, 6-months {BSBY6M Index <GO>} and 12-months {BSBY12M Index <GO>}.  Additional detail on the BSBY methodology can be accessed here.

Bloomberg is licensing BSBY for use as a financial benchmark via Bloomberg Index Services Limited (BISL), Bloomberg’s authorized benchmark administrator. In addition to BSBY, BISL administers the Bloomberg Barclays flagship family of fixed income indices, the Bloomberg Commodity Index (BCOM), and Bloomberg’s Global Equity Index family. BISL provides robust governance and oversight over its benchmark offerings, which will soon include a dedicated oversight function for BSBY composed of a balanced set of market stakeholders.

BSBY’s transaction-based inputs, robust construction and resilient methodology are designed to meet the high standards of both the BMR and the IOSCO principles for financial benchmarks (IOSCO Principles).  An independent assurance report for BSBY’s alignment with the IOSCO Principles will be made available when complete, and BSBY will soon be made available for licensing in additional jurisdictions, including the U.K. and the EU.  More information on BSBY licensing is available here.

Source: BSBY