What the End of the LIBOR Curve Means for Australians in 2025

The London Interbank Offered Rate (LIBOR) once underpinned trillions in global loans, investments, and derivatives. Now, with its global phase-out nearly complete, the financial landscape is shifting. What does the end of the LIBOR curve mean for Australians in 2025—and how should borrowers, investors, and businesses adapt?

The LIBOR Curve: From Benchmark Royalty to Obsolescence

For decades, the LIBOR curve was a go-to reference for pricing everything from business loans to complex derivatives. The ‘curve’ itself represented the yields at different maturities, offering a snapshot of how markets priced short-term risk between major banks. Even though Australia relied more on the Bank Bill Swap Rate (BBSW), LIBOR was still referenced in cross-border financing, foreign currency loans, and global investment products held by Australians.

• LIBOR’s role: Set rates on over US$300 trillion of contracts at its peak.

• Global impact: Influenced pricing on AUD loans with offshore lenders and many investment funds.

• Scandal and reform: Manipulation scandals in the early 2010s led regulators worldwide to demand a more robust benchmark.

2025: LIBOR is Out, What’s In?

With the last remaining US dollar LIBOR settings discontinued in June 2023, 2025 marks the first full year where LIBOR is all but extinct. Australian borrowers and investors must now navigate a world of alternative reference rates. The most prominent replacements include:

• SOFR (Secured Overnight Financing Rate): The US replacement, based on overnight Treasury repo transactions.

• BBSW (Bank Bill Swap Rate): Remains the key Australian benchmark for local dollar lending.

• SONIA, ESTR, TONA: UK, EU, and Japanese equivalents for global exposures.

For Australians with legacy contracts referencing LIBOR, most have now transitioned to “fallback” rates—either SOFR or the relevant local benchmark. New contracts are prohibited from referencing LIBOR. Lenders and borrowers have had to update documentation and, in many cases, renegotiate margins, as the new rates behave differently (SOFR, for example, is risk-free and backward-looking, unlike LIBOR’s forward-looking credit risk component).

Impacts on Borrowers, Investors, and Risk Management

The LIBOR curve’s disappearance changes the way risk is priced and managed across Australian finance:

• Loan pricing: Cross-border loans now use SOFR or BBSW, which can affect the overall cost and risk profile. Some borrowers have seen margins shift slightly due to the structural differences between LIBOR and its replacements.

• Hedging strategies: Derivative contracts, like interest rate swaps, now reference new rates. This may require updating risk models, especially for corporates with global exposures.

• Investment funds: Australian funds holding offshore assets have updated benchmarks, affecting valuations and performance metrics. Some have adjusted product disclosures to reflect the new regime.

• Operational overhaul: Banks and large corporates have invested in system upgrades and legal reviews to ensure compliance and reduce basis risk between old and new benchmarks.

In 2025, the Reserve Bank of Australia and ASIC continue to monitor the transition’s effects, issuing guidance for smooth adoption. Most observers expect market stability, but recommend vigilance for any mismatches or disputes in legacy contracts that haven’t fully transitioned.

Key Takeaways for Australians in 2025

• LIBOR is no longer a valid reference rate for loans or investments.

• Check your contracts—especially for overseas loans or investment products—to ensure they reference the correct new benchmark.

• Expect continued guidance from regulators as the new era of benchmark rates matures.

• Speak with your lender or financial adviser if you’re unsure about the transition’s impact on your finances.