Glossary

Libor and the OIS

These are two of the most important interest rates in the world. Libor is the London Interbank offered rate. The overnight index swap (OIS) is a broadly comparable rate in the US.

These are two of the most important interest rates in the world. Libor is the London Interbank offered rate. This is published by the British Banking Association based on averaging the rates at which major British banks are prepared to lend to each other.

The higher Libor is in relation to the Bank of England rate, the more nervous these banks are of each other. It is also used as the basis for pricing variable-rate mortgage products and commercial loans (for example, a company might be asked to pay a rate of, say, Libor+1%, depending on its credit rating).

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

In the US, the overnight index swap (OIS) is a broadly comparable rate, although it is calculated differently. It represents the average fixed rate US banks are prepared to offer in exchange for a short-term floating (ie, variable) rate of interest (called a swap). These swaps allow borrowers to hedge their exposure to rising rates.

The gap between Libor and the OIS is called the Libor/OIS spread and is another useful fear guage.

Advertisement
Advertisement - Article continues below
Advertisement

Most Popular

Visit/investments/stockmarkets/600909/will-coronavirus-kill-off-the-bull-market
Stockmarkets

Will coronavirus kill off the bull market?

It seems clear now the coronavirus will at some point go global. And when it does, will it bring down the stockmarket’s bull market? John Stepek looks…
27 Feb 2020
Visit/investments/commodities/gold/600887/gold-price-coronavirus-cost-of-face-masks
Gold

Gold, coronavirus, and the high cost of face masks in northern Italy

The price of gold is spiking – as it always does in a global panic. But this bull market predates the coronavirus epidemic, says Dominic Frisby, and w…
26 Feb 2020
Visit/investments/stockmarkets/600910/what-to-look-out-for-as-panic-over-coronavirus-spreads
Stockmarkets

What to look out for as panic over coronavirus spreads

Markets have started to get properly worried about the coronavirus outbreak. And it’s not just stocks, says John Stepek. Here’s what you should be kee…
28 Feb 2020
Visit/517625/tr-european-growth-trust-why-investors-shouldnt-overlook-europe
Sponsored

Why investors shouldn’t overlook Europe

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, tackles investor questions around Europe’s economic outlook and the conseq…
6 Nov 2019