Why LIBOR Fixings Look Smoother Than Treasury Bill Rates
Summary
This short explanation attributes the visual difference between LIBOR and US Treasury bill rates to how each rate is produced. Treasury bill yields are observed in an active market with substantial trading, so their reported values reflect ongoing price changes. LIBOR, by contrast, was based on a daily poll of large banks, whose submissions tended to adjust gradually. The different observation processes can therefore make the Treasury series appear more jagged and the LIBOR series smoother.
The answer offers a qualitative explanation rather than a statistical comparison of the series. It does not quantify the effect or discuss other influences such as instrument maturity, market conventions, or changes in rate-setting methodology. Its description concerns the LIBOR fixing process represented in the exchange and should not be treated as a general claim that every interbank benchmark is inherently smoother than market-traded rates.
Key ideas
- Treasury bill rates reflect prices formed in an active trading market.
- The LIBOR figure described here came from daily bank submissions.
- Gradual changes in submitted bank rates can produce a smoother series than market observations.
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Full text
# Why is LIBOR rate smoother than the US treasury rate? # Why is LIBOR rate smoother than the US treasury rate? Compare the daily rate graphs of LIBOR and US Treasury bill, the former is a lot smoother than the latter. Is there any reason for this? ## Answer by dm63 (score 1, accepted) https://quant.stackexchange.com/a/41413 It's because the Bill rate is observed from an active marketplace with billions of dollars of transactions, whereas Libor is the result of a daily poll of large banks, who tend to move the rate gradually and smoothly over time.
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