USD LIBOR 3 months and USD Libor 6 months 

• USD Libor is at an almost all-time low due to the sharp interest rate cuts from the Fed on the back of the COVID-19 scare
• USD swaps are indicating that there is a potential for LIBOR to fall further. There is currently around 25 bp carry if 3y IRS hedge is done i.e. the average Libor over the next 3 years is expected to be lower than the current libor by 25 bp
• Current Fed futures indicating a small possibility of negative Fed funds rate by Sep-Dec 2020.
• The economic shock of COVID might not be temporary – the possibility of a jump in Libor is negligible
• Fed is not keen on negative rates – unless forced by massive market crash – possible if second infection wave comes back in a few months.
• In all, expect that Libor would stay depressed. In the event of negative rates, expect a more downward move in swap rates and better hedge rates.
• Risk of keeping positions unhedged is minimal as the risk of a sharp rise in Libor is almost non-existent at this stage

Libor Rates 

 IRS Levels

Against 3ML