The LIBOR to SOFR transition

U.S. dollar LIBOR is gone. The last panel-bank settings of USD LIBOR ceased on June 30, 2023, and the temporary "synthetic" 1-, 3- and 6-month settings that the UK Financial Conduct Authority (FCA) kept alive for legacy contracts were published for the last time on September 30, 2024. In the FCA's statement the next day: "All 35 LIBOR settings have now permanently ceased." Contracts that still referenced USD LIBOR moved onto SOFR in one of three ways: their own fallback language (most derivatives did this through ISDA's fallbacks), a federal statutory replacement under the Adjustable Interest Rate (LIBOR) Act and the Federal Reserve's Regulation ZZ, or, for a short period, synthetic LIBOR.

The switch ran from the convening of the Alternative Reference Rates Committee (ARRC) in 2014 to the final synthetic fixing on September 30, 2024, about a decade. The dates below come from the primary documents: New York Fed and ARRC releases, the Federal Reserve Board, the FCA, ISDA and the Federal Register.

Timeline of the USD LIBOR transition

Why March 5, 2021 was the decisive date

Most of the timeline is preparation. March 5, 2021 is where the outcome became fixed. The FCA confirmed that the remaining USD settings would "either cease to be provided by any administrator or no longer be representative" immediately after June 30, 2023. ICE Benchmark Administration, LIBOR's administrator, confirmed the same cessation dates from its consultation feedback. ISDA then declared an Index Cessation Event under its fallbacks, which made March 5, 2021 the "Spread Adjustment Fixing Date" for every LIBOR tenor in every currency.

That second consequence mattered as much as the first. Every fallback written in ISDA's form, and every cash product that followed the ARRC's recommendation, now had a known spread to add to SOFR, frozen for good. The 3-month value, for example, is 0.26161%. The ARRC chair, Tom Wipf, put it this way that day: "We now know when a representative USD LIBOR will end and what its associated spread adjustments will be in no uncertain terms." How those spreads were calculated, and the full set by tenor, are in our credit spread adjustment guide.

What happened to legacy contracts

A contract signed in, say, 2016 and maturing in 2028 had a problem: it referenced a rate that would stop. Which route it took to SOFR depended on what its documentation said.

Route 1: contractual fallback language

For derivatives, ISDA did the work at the level of the standard documentation. The IBOR Fallbacks Supplement (Supplement number 70 to the 2006 ISDA Definitions) built the fallbacks into new trades from January 25, 2021. The ISDA 2020 IBOR Fallbacks Protocol let two adhering counterparties insert the same terms into their existing non-cleared trades. For any fixing due after a LIBOR setting ceased or became non-representative, the trade used the "all-in" fallback rate that Bloomberg Index Services Limited publishes: SOFR compounded in arrears over the tenor with a two-day backward shift, plus the fixed spread. Under the ISDA Definitions, the published fallback rates are binding.

For loans, notes and securitizations, the equivalent was fallback language in the contract itself. The ARRC recommended that non-consumer cash products use the same spread adjustments as ISDA, and for consumer products it recommended a one-year transition toward the five-year median spread. Refinitiv published the resulting spread-adjusted cash fallback rates; Regulation ZZ refers to them as "USD IBOR Cash Fallbacks".

Route 2: the LIBOR Act and Regulation ZZ

Some contracts had no workable fallback at all, or none that could practicably be applied once LIBOR stopped. The Federal Reserve Board calls these "tough legacy contracts", and the LIBOR Act exists for them. Its stated purpose is "to establish a clear and uniform process, on a nationwide basis, for replacing the overnight and one-, three-, six-, and 12-month tenors of U.S. dollar LIBOR in existing contracts that do not provide for the use of a clearly defined or practicable replacement benchmark rate" and "to preclude litigation related to such existing contracts." Contracts that already named a clearly defined and practicable replacement were left to run on their own terms.

Regulation ZZ names the replacement the Board selected for each kind of contract, effective from the LIBOR replacement date:

The five Reg ZZ tenor spreads are 0.00644% (overnight), 0.11448% (1-month), 0.26161% (3-month), 0.42826% (6-month) and 0.71513% (12-month). They are the same values ISDA fixed on March 5, 2021. The 1-week and 2-month tenors are absent because those settings had already ended in 2021. The regulation also includes a section on continuity of contract and safe harbor (12 CFR 253.7). Whether it covers a particular contract is a legal question for counsel.

Read across the table, a business loan with no workable fallback that paid 3-month LIBOR plus a margin became, from its first rate reset on or after July 3, 2023, a loan paying 3-month CME Term SOFR plus 0.26161% plus the same margin. We explain Term SOFR on the Term SOFR vs overnight SOFR page, but we do not publish its values: it is a CME Group benchmark that requires a licence.

Route 3: synthetic LIBOR, a bridge that has closed

The LIBOR Act is a U.S. statute. Contracts governed by other law could not rely on it, and the FCA's answer was synthetic LIBOR. From July 1, 2023 to September 30, 2024, ICE Benchmark Administration published 1-, 3- and 6-month USD LIBOR as "the relevant CME Term SOFR Reference Rate plus the respective ISDA fixed spread adjustment." The FCA was explicit that synthetic LIBOR was not representative and was meant for tough legacy contracts only. New use was prohibited under the UK Benchmarks Regulation from July 1, 2023, and cleared derivatives could not use it at all. Since October 1, 2024 no USD LIBOR setting of any kind has been published.

Worked example: a 3-month fallback period in 2023

Take a legacy $10,000,000 interest rate swap whose floating leg paid 3-month USD LIBOR, with each period's rate fixed two London banking days before the period starts. Both counterparties adhered to the ISDA Protocol, so the leg switched to the ISDA fallback for its first fixing after the panel settings ceased.

Timing trips people up here. A period starting July 3, 2023 would have been fixed on June 29, 2023, when panel 3-month LIBOR was still published, so it accrued at that LIBOR fixing, not the fallback. The fallback governs fixings from July 3, 2023 onward. Take a later period that was fixed on Monday, July 10, 2023 and ran from July 12, 2023 to October 12, 2023: 92 days.

With the two-business-day backward shift, the observation window runs from July 10, 2023 to October 10, 2023, also 92 days. (October 9 was Columbus Day, with no SOFR publication, but it falls inside the window and does not move either end.) Because both windows are 92 days, the question of which day count annualizes the compounded rate does not change the answer here. The New York Fed's SOFR Index was 1.08680933 on July 10, 2023 and 1.10151098 on October 10, 2023.

Compounding the daily SOFR prints directly over the same window gives the same 5.29331% to five decimals. The spread is added after compounding and is not itself compounded. Bloomberg's published fallback is the binding figure for the swap. We have not been able to read Bloomberg's Rule Book, so any rounding or date convention it applies beyond the two-day shift is not reflected here.

The example shows the structural change in practice. SOFR printed 5.06% on July 10, 2023 and 5.31% on October 10, 2023. The federal funds target range moved up 25 bp to 5.25%–5.50% in between (the first EFFR in the new range was published for July 27, 2023). Under LIBOR, the rate for this period would have been known on July 10. Because the fallback compounds in arrears, the increase fed into this period's rate, and, as ISDA notes, such a rate "cannot be calculated and published until around the end of the relevant IBOR tenor period." You can rerun this for any period with the LIBOR fallback calculator, or check the compounded leg alone with the SOFR Index calculator. The daily rates for those months are on the 2023 SOFR history page.

SOFR at the transition milestones

The replacement rate was put in place across very different rate environments. SOFR sat near zero through the fixing of the spreads and the end of new LIBOR, then rose above 5% by the time the panel settings ceased.

Daily volume behind the rate was $1,549 billion on the day panel LIBOR ended, against $849 billion on the first print. For how that volume is turned into a single rate, see how SOFR is calculated. For the lookback, lockout and observation-shift conventions that new SOFR loans and notes use instead of a fallback, see compounding in arrears conventions.