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does LIBOR track Fed rate or US treasuries?

snigletsniglet
edited August 2007 in The Economy
Does anyone know exactly what the LIBOR tracks? I know it is the rate of interest on US dollars offered by London banks. However, I am unclear as to whether this tracks treasury rates or Fed rates. If it tracks treasuries, then it might not follow Fed rate moves (i.e. since treasuries don't directly correlate to Fed rates).

Comments

  • bilirubenbiliruben
    I don't think any of the indeces (and there are a lot of them) track FED rates.

    My index tracks 9 mo. t-bills.
  • bilirubenbiliruben
    Shoot. Confused that with my student loan. My mortgage, were we not to sell our house in the next 4 years, would adjust to more complicated average of several bond rates (+2), but is historically similar to LIBOR.
  • financefinance
    The Fed Funds rate is the rate (currently 5.25%) that the Fed charges banks to borrow from it and other banks charge eachother approx that rate as well. It is directly linked to the Prime rate (currently 8.25%) which is a main source in how mortgages are calcuated (and almost exclusively for 2nd mortgages). The actual mortgage rates are a hybrid of longer term bonds (the 10-yr) plus a hodge podge of interest rate risk, volititlity in the market and how competitive other lenders are with getting your loan...

    The LIBOR is starting to become a more universal global rate throughout the world, while the Fed Funds Rate is more exclusively related to the US, but we all know they are interelated to some degree with the credit markets. As far as I have been told the US mortgage market tracks the Fed Funds rate more than LIBOR since the loans are origonated in the US
  • NudeNude
    sniglet wrote:
    Does anyone know exactly what the LIBOR tracks? I know it is the rate of interest on US dollars offered by London banks. However, I am unclear as to whether this tracks treasury rates or Fed rates. If it tracks treasuries, then it might not follow Fed rate moves (i.e. since treasuries don't directly correlate to Fed rates).

    As far as I can tell..."BBA LIBOR is set entirely independently for each currency by a different panel of banks and the rates are not interrelated via a currency conversion or any other means. In fact BBA LIBOR gives an idea at which interest rates banks can borrow funds in the currency concerned in the London cash market.

    For instance, borrowings in USD are sometimes referred to as Eurodollar interest rates. The factor that has most impact on each of the rates is the domestic interest, which for USD rates will be the Fed fund rates."

    Taken from http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=225&a=1416
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