Why Swap Curves Differ from Published LIBOR Fixings

Summary

The document examines why the six-month point on a market-calibrated swap curve can differ from the published six-month LIBOR fixing. The explanation distinguishes the fixing from the market deposit rate used to calibrate the curve. A deposit instrument provides a market estimate of current cash borrowing conditions that can update throughout the day, while a published fixing is a snapshot and may remain unchanged after later market events.

The curve is therefore designed to represent market-implied rates and project future fixings, rather than reproduce the published fixing at every point. The fixing itself comes from a historical fixing series. The answer is brief and does not describe the curve’s full calibration or interpolation process, nor quantify how large the discrepancy may be; it also frames the discussion in the context of LIBOR conventions, which have since changed in many markets.

Key ideas

• A swap curve’s six-month point need not equal the published six-month LIBOR fixing.
• Curve calibration typically uses a market deposit rate rather than the published fixing.
• Market deposit rates can reflect intraday changes while a fixing is a published snapshot.
• The curve represents market-implied rates for projecting future rates, while historical fixings come from a fixing series.
• The explanation does not detail the complete calibration process or quantify discrepancies.

Tags

# Why doesn't the libor curve match libor fixings?


# Why doesn't the libor curve match libor fixings?












Consider the 6M Libor rate (in any ccy). This is a rate that is/was published every day.

For every one of those days, we also have 6M swap curves available, which are calibrated based on market instruments. On these 6M swap curves, I can look up the 6M point. This ought to be exactly equal to the observed 6M Libor rate on that day.

Yet, and you can easily verify this on Bloomberg, is not the case. There is significant deviation between the 6M libor rates and the 6M-point on the 6M swap curve.

How come?

And whatever the reason may be, why is this swap curve then used to project forward fixings? If it doesn't even match the fixing today, what hope does it have of matching future fixings?

## Answer by Attack68 (score 4)

https://quant.stackexchange.com/a/84137

The 6M deposit rate (not the fixing rate) is usually used as a curve calibration instrument. It allows one to construct a curve that has accurate market estimated 6M rates tomorrow (via interpolation). If you use today's 6M IBOR rate for that purpose you will have a static value for 6 hours of the day, even after some major event.

Everyone knows what todays published fixing is, but the estimate of market traded 6M cash in the market at realtime is a different matter. The fixing does not need to be represented on the curve. Instead it is derived from a fixings timeseries.

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.