What is the Libor/OIS spread?

By Deputy editor Tim Bennett Jul 27, 2012

Tim Bennett

Share with
friends:

Comments (4) Print this article

Tim Bennett looks at a red flag that can warn of trouble in the banking sector - and potentially the wider economy - and how to interpret what it's telling you.

• Having trouble viewing this video? Click here for a version optimised for slower connections.

Related videos

• What is a swap?

• Libor - Britain's most important interest rate

• Watch all of Tim's video tutorials here

Comments (4)

Published in Video tutorials | More articles by Tim Bennett

Share with
friends:

Related articles

Comments

Leave a comment

  • 1. Tom Roundhouse

    (28 July 2012, 12:07PM)  Complain about this comment

    Bravo!

  • 2. Mehra

    (31 July 2012, 05:50PM)  Complain about this comment

    1) Who can borrow money at OIS and from whom? Only banks are allowed to borrow money at OIS or can Company’s also borrow money at OIS?
    2) Is there any parameter to arrive at OIS figure?
    3) I didn’t understand the overnight part comprehensively? By overnight do you mean to say that a bank can borrow money in the night and should repay it in the morning?
    4) Do Londoners use OIS?
    5) In libor video you mentioned that if libor rises, one has to pay higher interest on mortgage? Is that same in case of OIS?

  • 3. Tim Bennett

    (01 August 2012, 09:27AM)  Complain about this comment

    Mehra - good questions but they would need another OIS video or two to answer fully! In summary - OIS rate is derived from overnight rate such as SONIA (sterling overnight index average). That's the interbank overnight sterling deposit rate. Yes - used for overnight loans. Equivalent rates exist for other currencies - e.g. EONIA is Euro rate. Variable mortgage rates can be affected by changes in LIBOR. In theory 3 months x overnight rate +risk premium for time deposit should equal 3m LIBOR. When fear's in the market it doesn't.....

  • 4. kaur

    (06 August 2012, 03:13AM)  Complain about this comment

    tim - If you don't mind, can you Cover OIS entirely in another video.
    The term ''Overnight'' is Perplexing me too. Is one entitled to borrow small amount of money overnight say 1 million or can they borrow huge sum say 6 or 7 million. By overnight you mean borrowing at night and repaying it the very next day along with interest. How and why do we compound this rate. Don't you think that depositing or borrowing overnight is a laborious task.

Leave a comment

This will be the name displayed with your comment.

This helps us verify comments are genuine. It will not be displayed anywhere on the site and is stored confidentially.

Please keep your comment within 1,000 characters and relevant to the main topic. We encourage healthy debate, but we don't allow insults or bad language. Anything off topic or unpleasant, we'll remove. Enjoy the conversation! Thank you.

captcha To prevent spam-related comments please enter the characters shown in the 'Captcha' box to the left.

By leaving a comment you accept our terms and conditions.


>