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FFR published by Fed Bank of NY is the average rate US banks charge each other for the overnight loans of their reserves required by the Fed regulations. Since Fed acts similar to a clearing house here, I guess there is little credit risk involved. For that reason we may as well expect LIBOR rate for the very same maturity to be a bit higher. In fact, currently overnight USD LIBOR is 12 bps whereas FFR is 13-14 bps, so that does not quite hold.

Nevertheless, I'm looking into longer maturities LIBOR and of course the feature much higher rates. For example, 2-months is 25 bps and 3-months is 30 bps. I wonder which part of that comes from the credit risk, and which comes from the potential rate hike before that maturity. Unfortunately there is no 2- or 3-months FFR available, so I wondered whether there's any proxy for that: that would help estimating the rate hike component in LIBOR rates. From the other direction, I thought of estimating the credit risk component from LIBOR rates in other currencies (the less they are dependent on the US rates the better of course), and hence getting rate hike effect left. Any suggestions?

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    $\begingroup$ Would a downvoter care to explain? To me decomposing different effects from the one rate seems to be a reasonable quantitative problem. $\endgroup$ – Ulysses Aug 3 '15 at 8:41
  • $\begingroup$ People who are interested in future rate hikes usually look at Fed Funds Futures. $\endgroup$ – noob2 Aug 3 '15 at 13:45
  • $\begingroup$ @noob2, that's not true. Fed funds futures are only liquid for the first year or so. Beyond that, you almost certainly need to look at other markets like Eurodollar futures. In recent years, using OIS is pretty popular. $\endgroup$ – Helin Aug 3 '15 at 20:20

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