Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Handy Ways to Boost Your Home Income - 26th Mar 19
US Treasury Bond Yield Inversion and Political Fed Cycles - 26th Mar 19
Golan Heights Oil all about the Shekels - 26th Mar 19
Falling Yields a Catalyst for The Gold Catalyst - 26th Mar 19
Can We Lock Up Rachel Maddow Now? - 25th Mar 19
Real US National Debt Might Be $230 Trillion - 25th Mar 19
Friday's Stock Market Sell-Off - New Downtrend or Just Correction? - 25th Mar 19
20 Days Left to Find Buying Opportunities In Gold - 25th Mar 19
Will the Historic Imbalance in Gold Stocks to Gold Price Resolve ? - 25th Mar 19
EasySMX Wireless Games Controllers Review - 25th Mar 19
Stock Market Short-term Top - 25th Mar 19
UK Population Growth - Latest ONS Immigration Statistics and Consequences - 24th Mar 19
The Fed Follows Trump's Tweets, And Does The Right Thing - 24th Mar 19
Yield Curves, 2yr Yield, SPX Stocks and a Crack Up Boom? - 24th Mar 19
Risk/Reward in Silver Favors Buying Now, Not Waiting for Big Moves - 23rd Mar 19
Similarities Between Stock Market Today and Previous Bull Market Tops - 23rd Mar 19
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

Credit Crisis SCOOP- LIBOR Is Now Irrelevant to Derivatives Pricing

Interest-Rates / Credit Crisis 2008 Apr 17, 2008 - 04:16 PM GMT

By: Rob_Kirby

Interest-Rates Best Financial Markets Analysis ArticleIn the latest Office of the Comptroller of the Currency – Quarterly Derivatives Report [Q4/07], we learn that outstanding notionals for reporting banks declined by 8 Trillion. Furthermore, we are told that the overall decline was “driven by a 9.2 Trillion reduction in interest rate contracts – mostly swaps with maturities of less than one year .”


What everyone needs to understand is that short term interest rate swaps are ALL hedged against 3 month Eurodollar futures – a Libor based product. But look at what is revealed here:  http://www.telegraph.co.uk/money...

Libor credibility questioned as credit crunch deepens

By Peter Taylor
Last Updated: 12:49am BST 17/04/2008

The British Bankers' Association has brought forward a review into how it sets the pivotal London Interbank Offered Rate amid mounting concerns over the credibility of the measurement.

The association yesterday revealed it was re-assessing how it calculates Libor - a benchmark measurement that filters through the economy, affecting mortgage and other interest rates across the lending system.

Despite widespread concerns that Libor has blown out to levels significantly above base rates, economists fear banks are understating the rates at which they are prepared to lend to each other, downplaying liquidity problems.

Pressure for an overhaul of the Libor calculation process is escalating after a report last week, Is Libor Broken?, by Citigroup interest rate strategist Scott Peng, who said the inter-bank rate "touches everyone". "We believe the current liquidity crisis has damaged the inter-bank market, resulting in Libor sets that at times deviate significantly from real inter-bank lending rates," he said.

• The financial crisis in full 

Paul Calello, chief executive of investment banking at Credit Suisse, yesterday joined a growing chorus questioning Libor reliability.

"Continuing to base an enormous amount of derivative contracts on an index with credibility problems is a serious issue we must address," he told a banking conference.

Credit Suisse rate strategist William Porter said Libor had a "huge incumbent advantage" the British Bankers' Association (BBA) was in danger of losing. "There's no underlying transaction actually done at Libor, so it is inherently subjective, and yet it fixes the interest rates on a large proportion of the world's interest-rate contracts."…….

The Decline Was All J.P. Morgan

This explains why the “contraction” in interest rate derivatives in Q4/07 was restricted to the short end of the curve – the buggers have corrupted the benchmark which these trades are hedged against. Short term interest rate swaps are all hedged against 3 month Eurodollar futures – a Libor based product. This is evidenced by the reduction in interest rate derivatives, maturing in less than one year, at J.P. Morgan in the aggregate amount of 8 Trillion from Q3/07 to Q4/07. 

So let's just say that J.P. Morgan is ALREADY WELL AWARE that Libor became irrelevant. Their derivatives book emphatically states as much.

By Rob Kirby
http://www.kirbyanalytics.com/

Rob Kirby is the editor of the Kirby Analytics Bi-weekly Online Newsletter, which provides proprietry Macroeconomic Research.

Many of Rob's published articles are archived at http://www.financialsense.com/fsu/editorials/kirby/archive.html , and edited by Mary Puplava of http://www.financialsense.com

Rob Kirby Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

A. Culzac
20 Apr 08, 20:43
LIBOR SCOOP

This article is amazing! I don't know how yall find these things but thanks for letting us average folk (I'm a college student) on this type of info!

A. Culzac


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules