There is now less than three years to go until the old Libor market reference point will become a thing of the past.  However pension funds and insurance companies alike have already encountered some market volatility in their attempts to transition their portfolios to the Sonia benchmark - and it can be a real headache for LDI funds and insurers in particular.

As the Regulator's consultation period got underway in 2018, funds of all shapes and sizes began the process of unwinding their Libor-referenced holdings and replacing them with the more contemporaneous Sonia benchmark - something which caused the spread to widen in particular during the summer of 2018.  Some pointed to a 'two-way market' opening up, as insurers found it harder to unwind their portfolios than their pension scheme brethren.  

Meanwhile, those engaged in the most active LDI strategies continue to be affected, as managers holding bilateral swap arrangements with multiple bank counterparties are forced to engage in the time-consuming process of agreeing a reference point which is simultaneously acceptable to all involved. 

As spring 2018 turned to summer, the Bank of England warned in its June consultation paper that the number of active derivatives which remained Libor referenced beyond 2021 was actually growing. 

So what's the worst that can happen?  Well, apart from the odd law suit....Investment Week's Mike Sheen picks up the story...