LIBOR still dropping...

michaels

Worth remembering that 3 month libor is like a 3 month fixed rate so includes an adjustment for expected interest rate changes during the 3 month period as well as a 'risk premium' element. eg suppose base rate was 1% but was 'certain' to be cut to 0.5% after 6 weeks, 3 month libor would reflect that for the first 6 weeks the base rate was going to be 1% and for the final 6 weeks it would only be 0.5% os average of 0.75% - if libor was then trading at 15 basis points above base rate it would actually be at 0.9% so apparently lower than the base rate but in reality higher than the expected average base rate for the tenor.

morg_monster wrote: »

Hi
probably a question that has already been answered in this thread somewhere, but what was the gap between BOE rate and LIBOR rate (I guess 3m?) before this whole credit crunch malarkey kicked off? Thinking absolute difference, but maybe relative is more important. IE, will the drops in LIBOR slow/stop soon purely because the rates are getting back to historical "normal" in terms of difference at least?

inspector_monkfish

michaels wrote: »

Worth remembering that 3 month libor is like a 3 month fixed rate so includes an adjustment for expected interest rate changes during the 3 month period as well as a 'risk premium' element. eg suppose base rate was 1% but was 'certain' to be cut to 0.5% after 6 weeks, 3 month libor would reflect that for the first 6 weeks the base rate was going to be 1% and for the final 6 weeks it would only be 0.5% os average of 0.75% - if libor was then trading at 15 basis points above base rate it would actually be at 0.9% so apparently lower than the base rate but in reality higher than the expected average base rate for the tenor.

u can see evidence of this in places in my list of LIBORs above
you can also see evidence of them being completely wrong !!

inspector_monkfish

LIBORs 10th Sep

3mth 0.63125
6mth 0.84375
12mth 1.16625

all down 1pt

inspector_monkfish

LIBORs 11th Sep

3mth 0.62688
6mth 0.83750
12mth 1.16125

all down about 1/2pt

LilacPixie

I wonder how long they can keep dropping for.

My mortgage FR 5.99% ends soon and changes to a tracker .5% above the 6 month LIBOR looking forward making some overpayments

inspector_monkfish

LilacPixie wrote: »

I wonder how long they can keep dropping for.

My mortgage FR 5.99% ends soon and changes to a tracker .5% above the 6 month LIBOR looking forward making some overpayments

well has to come a time when they will flatten out i suppose, but can't see the base rate moving far from 0.50 for a long long time

inspector_monkfish

LIBORs 14th Sep

3mth 0.62
6mth 0.8303
12mth 1.15625


all down 1/2 to 1pt

inspector_monkfish

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inspector_monkfish

LIBORs 15th Sep

3mth 0.61063
6mth 0.81875
12mth 1.1475

all down about 1pt

inspector_monkfish

LIBORs 16th Sep

some big drops today, after King's comments yesterday...

3mth 0.59438
6mth 0.80
12mth 1.13375 (down 1.375 bp)