Forex 24x7

A series of LIBOR correlation articles published on this site in late 2008--early 2009 were very well received by the readers. The financial panic of 2008 was the most extreme event for LIBOR, and for reasons of timing, was not covered very well in these articles. Now, I am coming back to the topic with more data and the same statistical analysis framework. The data presented here cover the period from August 16, 2007 (the day Countrywide Financial made the news, triggering a change in the Fed stance) through July 30, 2010. The period chosen is the one charactirized by the US Fed single-minded focus on lowering the short- and longer-term interest rates. Not surprisingly, this definite trend shows up in the correlation analysis as a broad positive correlation peak. Cross-correlation analysis of different maturities shows shorter maturities to play the role of leading indicators for the longer ones. The effect has a characteristic time length of up to ten days. It is the most prominent when combining overnight LIBOR with the 1-month one, or combining the 1-week LIBOR with longer terms.