How to use short sterling futures to estimate BOE's interest rate?

[Hayek]

As title. Thank you.

 

[Hayek]

100 - (price trading) = implied libor rate.

ie Dec05, 18:00GMT close price of 95.23

100-95.23= 4.77%

Sterling futures settle against LIBOR which i think historically averages about 12 basis points above the BOE base rate. ie: 4.65% for base in this example

Do this for each contract on the strip and you will build up the curve out to Mar 2010

Hope that helps.

I just don't know how many bps repo historically averagely differs from LIBOR.

Thanks a lot, tsuntzu.

 

[Hayek]

100 - (price trading) = implied libor rate.

ie Dec05, 18:00GMT close price of 95.23

100-95.23= 4.77%

Sterling futures settle against LIBOR which i think historically averages about 12 basis points above the BOE base rate. ie: 4.65% for base in this example

Do this for each contract on the strip and you will build up the curve out to Mar 2010

Hope that helps.

It should be 15 or 16 basis points now. I found it in Bloomberg articles.

 

[JP1966]

Not true really -it depends on the shape of the yield curve.

The future is settled against 3 month LIBOR - ie where banks are prepared to lend 3 month money. There will be a big difference between how this relates to the current Base Rate dependent on whether the next move is likely to be up or down.

For example if the MPC do cut rates in August and then the inflation report published the following week is dovish then I would be amazed if the September future settled at an effective rate of 4.65% (ie 93.35).

 

[JP1966]

Agreed with you GJ - £ is the best currency out of the majors to trade post figures as it often follows interest rates. I always have short £, EURIBOR and the CME dollar futures up as spot can often follow the futures slightly later.

 

[JP1966]

I don't trade the Swissy although the guy I sit next to used to be the main trader for it at a large clearer in London so he follows it closely and says when things are going on. In the 'old days' I always used to follow DM/CHF for a steer on dollar mark but don't really use the EUR/CHF in the same way, for some reason.

 

[Anonymous]

Is the question about overnight libor rate or 3-month libor rate?

 

[JP1966]

Short sterling settles against 3 month LIBOR.

 

[Anonymous]

So the questioner wants to know how to use 3 month short sterling futures to estimate BOE's interest rate?

Barring a negative interest rate, the 3 month short sterling, assuming it is not an inverted yield curve there is the normal yield curve, the futures becomes the spot when the day comes...

Shouldn't the question be: how to estimate the other rates after you know the BOE's interest rate?

 

[Hayek]

Sorry, I just wrote

Sterling futures settle against LIBOR which i think historically averages about 12 (No, it is 15 or 16) basis points above the BOE base rate.

Maybe I wrote it too simple coz I thought that would not produce misunderstanding.