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What do Swiss franc Libor futures really tell us?

Author

Listed:
  • Dr. Lucas Marc Fuhrer
  • Dr. Basil Guggenheim
  • Dr. Matthias Jüttner
Abstract
This paper sheds light on Swiss franc Libor futures, which are often used to measure interest rate expectations. We show that the differences between Libor futures and realized rates (excess returns) are, on average, positive over the last 25 years. Using interest rate surveys, we decompose excess returns into a (forward) term premium and forecast errors. The decomposition reveals that the bulk of excess returns arises from forecast errors, while the term premium is time varying but on average zero. We find that the term premium positively correlates with the business cycle, interest rate developments, and in absolute values increases with interest rate uncertainty. Our findings suggest that Libor futures should be adjusted by the term premium to extract risk-neutral interest rate expectations.

Suggested Citation

  • Dr. Lucas Marc Fuhrer & Dr. Basil Guggenheim & Dr. Matthias Jüttner, 2018. "What do Swiss franc Libor futures really tell us?," Working Papers 2018-06, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2018-06
    as

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    File URL: https://www.snb.ch/en/publications/research/working-papers/2018/working_paper_2018_06
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Term premium; Libor futures; Swiss franc;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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