Figure 2. Spreads of 3-month Libor over OIS rate, 2002-09.
Data are plotted as a curve. The spread of the 3-month Libor over the OIS rate starts in 2002 at about 13 basis points. It remains within a band of 7 to 20 basis points until the beginning of August 2007, when it begins to rise rapidly to surpass 90 basis points by mid-September. It drops below 50 basis points by the beginning of November 2007, but rises to above 100 basis points by the beginning of December 2007 and ends the year at about 60 basis points. In the first quarter of 2008, it moves up to about 70 basis points, remains at that elevated level in the second quarter, and then surges to more than 350 basis points in the third quarter. The spread of the 3-month Libor over the OIS rate reaches its peak of about 360 basis points in mid-October 2008 and then begins to move downward, falling below 100 basis points by the first week of January 2009. It ends April 16, 2009, at about 90 basis points.
NOTE: The data are daily and extend through April 16, 2009. For the London interbank offered rate (Libor), quotes are as of 6 a.m.; for the overnight index swap (OIS) rate, quotes are as of the close of business of the previous trading day. An OIS is an interest rate swap with the floating rate tied to an index of daily overnight rates, such as the effective federal funds rate. At maturity, two parties exchange, on the basis of the agreed notional amount, the difference between interest accrued at the fixed rate and interest accrued through geometric averaging of the floating, or index, rate.
SOURCE: For Libor, British Bankers' Association; for the OIS rate, Prebon.
