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Using Meeting-Date OIS Rates to Gauge Central Bank Decisions

Article Quant Q&A · Author: finance_noob
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Summary

The document asks how forward rate agreements can be used to infer the size and timing of expected central bank rate changes from a sequence of quoted forward rates and scheduled policy meetings. The replies caution that FRAs are not the most direct instrument for this purpose. They point instead to overnight index swaps, especially rates aligned with policy meeting dates, as a more direct market proxy for expected policy rates.

One suggested route is to use FRA pricing to estimate the relevant overnight index swap rates, then infer policy expectations from those rates. The other reply recommends looking at meeting-date OIS quotes in liquid markets, using broker screens or dealer pricing. The exchange gives practical direction but no calculation procedure, adjustment for meeting timing within a contract period, or worked estimate. It also does not discuss how risk premia, liquidity, or other market effects may separate traded rates from the market's true probability-weighted policy expectations.

Key ideas

  • FRAs are not presented as the most direct measure of expected central bank moves.
  • Meeting-date overnight index swap rates can serve as a closer market proxy for policy rates.
  • FRA pricing may first be used to estimate overnight index swap rates before inferring policy expectations.
  • The discussion offers no worked calculation or treatment of risk premia and market distortions.

Tags

Fixed incomeDerivatives pricingStatistics
Full text
# How would you use FRAs to find out how much Central Banks would cut/hike by?


# How would you use FRAs to find out how much Central Banks would cut/hike by?












Let's say you have The FRAs 1x4F, 2x5F, 3x6F, 4x7F, 5x8F... (meaning 3 months rate today, 3 months rate in 1 month, etc..) at 5.5, 5.5, 5.6, 5.55, 5.55.

Assume today's date is 20/09/2019.

You also have central bank meetings on 21/11/2019, 15/01/2020, 26/03/2020

How would you use this to predict the central bank's decisions at those dates?

## Answer by Attack68 (score 2)

https://quant.stackexchange.com/a/48804

You do not directly use FRAs to predict central bank rate moves. Instead you tend to use fed fund ois rates because they are more directly reliable as a proxy for those rates.

Otherwise you might first FRAs to estimate the ffois rates and then from there estimate the central bank rates

## Answer by user42108 (score 0)

https://quant.stackexchange.com/a/58687

Just look at meeting date OIS. There should be broker screens and dealer runs for these for liquid markets.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.