Fun With Perspective: The Libor-OIS Spread

It was a little more than a year ago when the Libor-OIS spread blew open from its typical spread of 8 to 10 basis points to 100 basis points:

It was quite a dramatic jump which indicated that interbank lending was drying up, prompting the Fed and other central banks to introduce measures like the Term Auction Facility to bring down the spread.

And here is how that jump looks in comparison to everything that followed:

You'd almost think that Aug '07 to Sep '08 was peaceful.

Comments

[Smarty_Pants:]

It could be worse. Any guess what the impact would be if Libor went negative?

Think about the implications of a negative Libor before answering too quickly.

Not pretty.

2008 Oct 09 05:13 PM