Pound Sterling (GBP) LIBOR rates: technical predictability overview

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Written by Forex Automaton   
Monday, 03 November 2008 17:36
Article Index
Pound Sterling (GBP) LIBOR rates: technical predictability overview
GBP LIBOR volatility
GBP LIBOR autocorrelations
Correlations between GBP LIBOR maturities, s/n-o/n and longer terms
Correlations between GBP LIBOR maturities, 1-week and longer terms
Correlations between GBP LIBOR maturities, 1-month and longer terms
Correlations between GBP LIBOR maturities, 3-month and longer terms
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The original motivation for the technical, mostly correlation-based study of LIBORs was outlined in the USD LIBOR article. Like the USD, EUR and JPY LIBOR reports, this document begins with historical LIBOR charts for the Pound Sterling, continues with volatility analysis, and culminates with correlations of logarithmic returns in GBP LIBOR. You will see that predictable patterns in GBP LIBORs show great variation with loan term. Autocorrelations of short-term LIBORs look jittery on the next-day time scale. Autocorrelations of short term (s/n-o/n and 1-week) LIBOR exhibit the now familiar "bipolar disorder" pattern with the characteristic time period of no more than 2-3 days. The smooth wave-like patterns of intermediate term USD and EUR LIBORs, about 70 days in period, are also found in GBP. As the term duration increases, the main correlation pattern becomes that of predictive (non-zero time lag) positive correlation between different maturity terms as well as inside individual time series (autocorrelation).

LIBOR charts

History of s/n-o/n GBP LIBOR 2002-2008 History of 1 week GBP LIBOR 2002-2008 History of 1-month GBP LIBOR 2002-2008 History of 3-month GBP LIBOR 2002-2008 History of 6-month GBP LIBOR 2002-2008 History of 12-month GBP LIBOR 2002-2008

Fig.1: Historical GBP LIBOR rates charts, top to bottom: s/n-o/n, 1-week, 1-month, 3-month, 6-month and 12-month. Time axis is labeled in MM-YY format.

The most striking feature is the high volatility of s/n-o/n and 1-week LIBOR rates in 2002 which gradually goes down. For the short maturities, the markets jump the gun trying to anticipate the course of events almost regularly, to the extent this nervousness must represent a regular and significant speculative opportunity, if the market instruments tied to the LIBOR rates have the same features. Longer maturities develop patterns of their own while the shorter ones are dominated by the basic step-like pattern modulated by the short-range neurosis. This will be seen qunatitatively in the correlation plots.



Last Updated ( Monday, 14 September 2009 17:04 )