A comparison of the information in the LIBOR and CMT term structures of interest rates

The information in global interest rate futures contracts

“…Overall, we examine 3‐month interbank rates in four markets—United States Dollar, Euro, Great Britain Pound, and Swiss Franc—and empirically document five unique results. First, the information contained in implied USD futures rates is significantly different from the information contained in USD spot rates previously explored by BCE (2015). Intuitively, implied forward rates derived from Eurodollar futures contracts incorporate information that differs from information in spot Libor because futures contracts are tied solely to 3‐month Libor, whereas USD spot interbank rates address various maturities.…”

“…Using daily observations from March 4, 1991 to October 1, 2020, we form time series of futures prices and time to maturity using only the on‐cycle contracts with maturities up to 3 years. Following BCE (2015) and Brooks and Teterin (2020), we use the last day of trading in the expiring contract as the rollover date to construct a vector of time series ordered by closeness to expiration, from the nearest (first nearby) to the most distant (12th nearby). Carchano and Pardo (2009) report no significant differences between the various possible choices of the rollover date in stock index futures, which are also cash settled.…”

“…For instance, the time to expiration of the first nearby contract in the Eurodollar futures ranges from 3 months to 3 days, with the average maturity of 47 days. We address this maturity drift problem in a manner similar to BCE (2015) and Brooks and Teterin (2020) by fitting a variant of the Nelson and Siegel (1987) curve to the observed daily term structure of implied forward rates. Our goal here is to interpolate the implied forward rate term structure to be able to select points on the yield curve that correspond to constant maturities.…”

“…BCE (2012) document that during recent periods more information exists in Libor spot rates concerning future interest rates than expected holding period returns. In their extension, BCE (2015) document significant differences in the informational content between Libor and CMT. They also observe that the information content changed significantly as the financial crisis began and that these changes were related to credit default swap rates and tenor swap rates.…”

Empirical Modeling of the Government and Corporate Bond Yields: The Case of Japan

“…Their results indicated that the CDS curve fitted the data well and successfully captured the various shapes of the CDS data, such as steep, inverted, and downward sloping curves of the CDS. Brooks et al (2015) examined the information contained in the term structures of the London Interbank Offered Rate (LIBOR) and the US Constant Maturity Treasury. Their main finding was that the information embedded in the two term structures was significantly different.…”