LIBOR: Definition & Meaning | Bondfish
LIBOR (London Interbank Offered Rate) was a benchmark interest rate at which major banks reported they could borrow unsecured funds from one another; it has been discontinued and replaced by rates such as SOFR.
What it means
For decades, LIBOR was published daily in several currencies and maturities and served as the reference rate for an estimated hundreds of trillions of dollars in loans, mortgages, floating-rate notes, and derivatives worldwide. It was calculated from a panel of banks self-reporting their estimated borrowing costs, a design that proved vulnerable to manipulation and was exposed in the LIBOR-rigging scandal of the early 2010s.
Regulators responded by phasing LIBOR out. Most LIBOR settings stopped being published after December 31, 2021, and the last U.S. dollar LIBOR settings were retired on June 30, 2023. It has been replaced by risk-free reference rates based on actual transactions: SOFR (Secured Overnight Financing Rate) in the U.S., SONIA in the U.K., €STR in the eurozone, and TONA in Japan.
Why it matters for bond investors
Older floating-rate notes, syndicated loans, and some legacy bonds still reference LIBOR through fallback language, or have already transitioned to SOFR or another replacement via contractual amendments. When evaluating a floating-rate bond, check which reference rate the coupon actually resets against today, since SOFR and LIBOR are not calculated the same way and can carry a small spread adjustment to keep economics roughly equivalent after the transition.
Related terms
This definition is for general information only and is not investment advice. Bond investing involves risk, including possible loss of principal.