The hairy chart: Historical accuracy of LIBOR forward curves
The graphs below plot the past forward curves over the actual path LIBOR followed. They show that the forward curve has been a somewhat accurate predictor over the next six months or so, pricing in more foreseeable market events in the near term. Beyond that, they have not generally been accurate as the market does not predict further and less certain events. This is the reason for the significant delta or “error” in forward rate predictions, particularly exaggerating the error when significant unanticipated events move LIBOR.
The forward curve remains an important base case for underwriting, with most investors adding a variety of scenarios for stress testing.
1-month USD LIBOR vs. historical forward curves
3-month GBP LIBOR vs. historical forward curves
3-month EURIBOR vs. historical forward curves
Do you have questions about interest rates, forward curves, or underwriting?
Contact us to learn more
Our featured insights
Capital markets and accounting considerations in real estate M&A
Mergers and acquisitions involve a multitude of complexities and risks. Speed and accuracy at every stage of an acquisition is critical to not only winning the deal but also giving the transaction the best chance of financial and strategic success. Financial risk associated with the valuation of...
GBP LIBOR transition for derivatives and use of the ISDA fallbacks
Many loans and derivatives are now in the process of being transitioned to SONIA, and there is a clearer pathway; with prior issues and obstacles being addressed. This piece presents the current position in the market and provides a pragmatic solution for borrowers who may not need, or want to,...
A tour of Europe — an update on interest rates
A brief update on the EUR, SEK, and GBP interest rate conditions, putting the recent year-to-date movements into the context of the last 12 months.
Request your interest rate cap execution checklist
Understanding the tactical steps involved in executing on an interest rate cap can help CRE investors plan and use their time efficiently prior to closing on a loan. Request your interest rate cap execution checklist here.
Thought leadership for housing associations: Embedded swaps and SONIA
There is emerging evidence that the way the housing association sector hedges its interest risk will change in the coming year. Currently, most are able to fix the debt through an embedded swap (a fixed-rate loan or “FRL”). FRLs account for the majority of fixed-rate borrowing for most small to...
Steepening yield curve increases cost of GBP interest rate hedging
A series of government bond selloffs have jolted financial markets since the start of 2021. In the UK, one consequence is a sharp rise in the cost of hedging GBP interest rate exposures. Having started the year at 0.08%, the five-year swap rate on 3-month GBP LIBOR hit 0.52% at the end of...
LIBOR transition timing update — the regulators have spoken
This piece summarizes a series of public announcements on March 5 regarding the timing of LIBOR cessation. Most notably, one- and three-month USD LIBOR will be published through June 30, 2023, while all non-USD LIBOR settings (GBP, EUR, CHF, JPY) will be published through December 31, 2021....
GlobeSt talks to Andrew Thornfeldt about the historical accuracy of the forward curve
In a Chatham webinar, 60% of attendees answered that they use the forward curve to project future interest rates. Andrew Thornfeldt told GlobeSt.com why they may be overestimating their costs if they rely on just the forward curve to make their debt and derivatives decisions.