LIBOR-OIS Spread Widening - What Lies Beneath?
The spread between the three-month London Interbank Offering Rate (LIBOR) and the Overnight Indexed Swap (OIS) has widened to its highest level since 2008. This increase may be grabbing headlines, but in our view it is not portending anything ominous at this point. The three-month LIBOR is a good proxy for interbank lending, as it tracks the rate at which banks are willing to lend money to each other. It stands at 2.29% (as of March 23, 2018). OIS uses an overnight index rate, such as the overnight fed funds rate, making it a good proxy for central bank rates. It currently stands at 1.70%. Thus the spread between the two can be seen as an ind... Read more