Recommended Instruments (and sources) for Constructing Money Market Yield Curves

Question

What instruments are the current industry recommendations for constructing money-market yield curves in some major currencies?

The switch after the crisis to multi-curve methods is well documented on this site (money market curves of different tenors vs zero-curve of government issued debt). Recently newer products like SOFR and Eris Swaps have been offered at CME, to detail one exchange in particular. Should these be used for short term yields in the USD curve? Are there alternatives?

For the U.S. dollar, wikipedia mentions these products:

Cash: (should SOFR futures be used now?)

• Overnight rate
• Tomorrow next rate
• 1m
• 3m

Eurodollar Futures: traded at the CME

• 3m to 10 years

Swaps: recommended instrument/source?

• 10 years+

Are there any peculiarities for Sterling (£), Euro (€), or Yen (¥) curves?

Note: I'm not necessarily asking for vendors - although that may be helpful information (looking for EOD data). I am looking to know where, in general, these markets are traded so I can continue to research further.

Edit: Following the procedures set by Everything You Always Wanted to Know About Multiple Interest Rate Curve Bootstrapping but Were Afraid to Ask - I'm looking to select the securities used for bootstrapping (for example) the $\mathcal{C}_{1M}$ curve on EUR or USD.

Is it the case the the Eurodollar futures and Euribor futures can only be used for the $\mathcal{C}_{3M}$ curve?

Answer 1

A plethora of instruments, a menagerie of curves

Different instruments are traded in different ways, and relate to a collection of curves. Floating rate instruments depend on some index in order to calculate the cashflows, and so trading instruments which depend on different indices is implicitly trading the expectations of those indices in the future.

Fed Funds (EFFR)

The Fed Effective rate is traded directly via Fed Fund Futures (CME) and USD OIS (OTC), and as a spread via 3m Libor-OIS basis swaps (OTC). Note that futures trade the average of the index, OIS trade the compounded rate.

SOFR

SOFR futures now exist on several exchanges; CME, CurveGlobal/LSEDM and ICE. CurveGlobal futures net against LCH positions (as part of the LSEG world) and have a margin efficiency advantage. CME SOFR futures discount at SOFR, CurveGlobal futures discount at EFFR (for now).

USD Libor (1m, 3m, 6m)

USD STIR futures trade 3m Libor on CME. USD Libor IRS are generally traded OTC and clear on LCH. 1m can be traded as an IRS or as a basis swap to 3m Libor, similarly 6m. FRAs can also be traded with the advantage that they clear on LCH and thus net for margining there.

Note that these instruments are margined in general, paying/receiving EFFR on the balance, and are discounted using the EFFR curve (for now).

Alternatives are also traded at the shorter end of the 1m curve, like 1m-OIS basis, 3m-OIS basis over IMM dates, etc.

Libor is due to end, and has an impact on those curves

Publically the Libor indices are supposed to end in the next few years, and the market is due to transition to the new RFRs, in particular SOFR for USD. Longer instruments which extend beyond that transition are therefore partially dependent on some replacement index or calculation, which is currently being decided in the industry. In theory after that transition there may be fewer curves, but there may also be added curves based on new indices.