Would like to incorporate the forward curve into my models to get a better (or more conservative) reflection of what my interest rate payments will look like when debt is a certain spread over LIBOR.
Is there either A) a website that can make the calculations B) an Excel tool I can integrate?
Would love to hear how others are using it.
How to Find Forward LIBOR Curve
LIBOR or ICE LIBOR is the Intercontinental Exchange London Interbank Offered Rate. Calculated as an average of what a collection of banks would charge for a loan to another bank for a given period of time (overnight, 1-month, 3-month, etc.), it is a reference point for setting various interest rates around the world.
There are a number of resources for finding the forward LIBOR curve, including:
- Pensford Financial Group
- Chatham Financial
- Bootstrapping Interest Rate Curves
- If you have access to a Bloomberg terminal, you should be able to get this information using the following commands: ICVS, curve 23, Forward Analysis
Sidenote: LIBOR is Going Away
It was announced in 2017 that LIBOR could be gone by 2021. Here are some articles to explain the change:
https://www.pensfordfinancial.com
WOW this is key.
Follow up question - if your debt is based on 1-month LIBOR rate, how far ahead are you looking for your curve? Do you stick to a year, or do you tie it to the length of your project?
Use the SWAP curve plus a credit spread and base it on the term of your project. If your project is 4 years and the 4Y, 1m SWAP rate is 287bps, that should be the average 1m LIBOR cost over the 4 years adjusted for TV of money.
In my models I just have a plug for # of basis points that L will rise that year. So if I plug 50 my rate will rise by 4.2 bps per month in my debt table.
Truth is, nobody really knows but it’s nice to be able to sensitize the deal to rate movement.
Just throwing this out there...LIBOR is going to go away. Can't remember exactly when, but it's in the next couple of years. There will still be an Index that previous loans will follow, but at some point in the near future loans will be tied to more old school indices like 1mo MTA, 12MAT, etc.
LIBOR is a fairly new active loan index, relatively speaking.
Great topic. I am also interested in hearing how others tackle this issue. All I have ever done is make an assumption as to how many bps my rate will grow, but I have heard of others actually building a forward curve. Curious to hear how you build that in Excel. Thanks.
Chatham financial sends out a LIBOR fwd curve in excel format weekly. I use this for all interest rate projections.
Here is the link: http://info.chathamfinancial.com/Email-Preference-Center.html
This is what I use as well. I just have a tab that I dump the latest curve into and then it pulls it into my monthly development cash flows. Looking back at older development models, their curve has been relatively accurate over the past two years.
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