Profits and Balance Sheet Developments at U.S. Commercial Banks in 2007
Figure 3. Spreads of 3-month Libor over OIS rate, 2002-08. Data plotted as a curve. The spread of Libor over OIS begins at about 12.6 basis points in 2002, oscillates between 9.5 basis points and 17.5 basis points through 2005, drops to a low of 5.9 basis points in the middle of 2006, and oscillates between 7 basis points and 9 basis points throughout 2006 and until the middle of 2007. The series then rises slightly between July 2007 and August 2007 to about 12 basis points, doubles overnight in early August to about 25.4 basis points, and doubles again overnight to about 47.5 basis points. By August 31, 2007, the spread rises to about 77.6 basis points, dropping to about 41.4 basis points by early November 2007, rising to 106.4 basis points by early December 2007, dropping to about 30 basis points in January 2008, oscillating between 57 basis points and 77 basis points in late February 2008 and throughout March 2008, rising to a high of about 94.2 basis points in mid-April 2008, and ending with a value of about 72.6 basis points in May 2008.
Note: The data are daily and extend through May 15, 2008. For Libor, quotes are as of 6 a.m.; for the OIS rate, quotes are as of the close of business of the previous trading day. An overnight index swap (OIS) is an interest rate swap with the floating rate tied to an index of daily overnight rates, such as the effective federal funds rate. At maturity, two parties exchange, on the basis of the agreed notional amount, the difference between interest accrued at the fixed rate and interest accrued through geometric averaging of the floating, or index, rate.
Source: For Libor, British Bankers' Association; for the OIS rate, Prebon.