Interpreting IRS and OIS Quotes for Multi-Curve Bootstrapping
Summary
The document examines how to interpret clearing-house interest rate swap and overnight indexed swap quotes when bootstrapping discount and forward curves. The response says the three-month LIBOR swap rates from CME and LCH appear broadly comparable, with CME somewhat higher; that difference would imply somewhat higher corresponding forward rates when building the curve. It interprets the one-month and six-month LIBOR sections as basis swap levels relative to three-month LIBOR, which can help construct those tenor-specific forward curves.
The overnight-indexed discount section is described as a federal funds versus three-month LIBOR basis, relevant to valuing cash flows using the federal funds discount curve. These identifications offer a practical reading of the data categories and their role in multi-curve bootstrapping. The exchange is brief and does not explain conventions, units, quote validation, or the full calibration procedure, so the interpretations should be checked against the source data definitions before implementation.
Key ideas
- Three-month LIBOR swap quotes provide inputs for bootstrapping the corresponding forward curve.
- Higher swap rates generally imply higher forward rates in the resulting curve construction.
- One-month and six-month LIBOR quote sections are interpreted as basis swaps against three-month LIBOR.
- An overnight-indexed discount curve and its basis relationship support discounting and valuation of cash flows.
- The response gives category-level guidance but omits detailed conventions and calibration steps.
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Full text
# How do I interpret LCH/CME OIS/IRS pricing data? # How do I interpret LCH/CME OIS/IRS pricing data? I'm trying to use publicly-available OIS/IRS clearing data from CME (ftp://ftp.cmegroup.com/../../irs/) and LCH (http://www.lch.com/en/asset-classes/otc-interest-rate-derivatives/volumes/settlement-prices-swapclear-global#usd) to bootstrap discount and LIBOR curves. The data between the two (for 9/27/17) only seems to line up for a few of quotes; otherwise CME seems to be way off. ``` CURVE_NAME TENOR CME LCH USD-LIBOR-BBA 1M 2 Years 0.085503 1.62863 USD-LIBOR-BBA 1M 3 Years 0.087091 1.7314 USD-LIBOR-BBA 1M 5 Years 0.086834 1.88156 USD-LIBOR-BBA 1M 10 Years 0.076219 2.16906 USD-LIBOR-BBA 1M 30 Years 0.083729 2.42323 *USD-LIBOR-BBA 3M 2 Years 1.735708 1.71488* *USD-LIBOR-BBA 3M 3 Years 1.841474 1.8189* *USD-LIBOR-BBA 3M 5 Years 2.001625 1.96906* *USD-LIBOR-BBA 3M 10 Years 2.292491 2.24531* *USD-LIBOR-BBA 3M 30 Years 2.566058 2.50698* USD-LIBOR-BBA 6M 2 Years 0.095259 1.81238 USD-LIBOR-BBA 6M 3 Years 0.105594 1.9214 USD-LIBOR-BBA 6M 5 Years 0.113404 2.07906 USD-LIBOR-BBA 6M 10 Years 0.127893 2.37479 USD-LIBOR-BBA 6M 30 Years 0.136217 2.64458 *USD LIBOR-OIS DISCOUNT CURVE 2 Years 1.507455 1.50574* USD LIBOR-OIS DISCOUNT CURVE 3 Years 0.225845 1.5926 USD LIBOR-OIS DISCOUNT CURVE 5 Years 0.251034 1.71656 USD LIBOR-OIS DISCOUNT CURVE 10 Years 0.296045 1.94901 USD LIBOR-OIS DISCOUNT CURVE 30 Years 0.351283 2.15568 ``` How should I interpret this disconnect for the purposes of bootstrapping curves? ## Answer by dm63 (score 2, accepted) https://quant.stackexchange.com/a/36234 The section that refers to USD-LIBOR-BBA 3M looks correct. This shows that CME IRS are marginally higher than LCH IRS. This means that when you bootstrap the curve, the corresponding forward rates will be higher also. The sections USD-LIBOR-BBA 1M and USD-LIBOR-BBA 6M appear to show the level of 3M-1M and 6M-1M basis swaps respectively. These may help in bootstrapping the forwards for 1M libor and 6M libor. The section USD-LIBOR-OIS appears to show the fed funds -3M libor basis swap , which you also need when bootstrapping, since the fed funds rates are needed to present value the cash flows.
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