Fed Takes a Back Seat for Traders Focused on Libor's Big Blowout
- Market expects wider Libor-OIS spread as T-Bill supply surges
- Upheaval is distorting signals from front-end eurodollars
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For traders focused on the short end of the U.S. rates market, next week’s Federal Reserve policy meeting is turning into a sideshow amid a relentless march higher in the London interbank offered rate and other money-market benchmarks.
With a quarter-point Fed hike largely priced in by the overnight index swaps market, all eyes are now on the surging dollar Libor rate and its spread over the OIS rate. A spread known as FRA/OIS, which measures market expectations for the Libor/OIS gap, this week breached 50 basis points for the first time since January 2012 and extended through 52 basis points Thursday.