OISLibor

OISLibor is a term used in finance to denote the spread or relationship between overnight indexed swap (OIS) rates and interbank offered rates (LIBOR), or more broadly a composite index that tracks the basis between the two benchmarks. In practice, OISLibor commonly refers to the OIS–LIBOR basis, computed as LIBOR minus the corresponding OIS rate for the same tenor. Because OIS rates reflect central bank policy and are viewed as near risk-free, while LIBOR embeds bank credit and liquidity risk, the spread reflects funding conditions and counterparty risk in the banking system.

Calculation typically follows the form OISLibor_t = LIBOR_t − OIS_t for a given tenor, though sign conventions can vary by source. Traders and risk managers monitor this basis to gauge changes in liquidity and credit conditions, and to price or hedge basis risk in interest rate derivatives and basis swaps. The measure also arises in the context of pricing under collateralization, where OIS rates are often used for discounting cash flows while LIBOR-based instruments may require a spread adjustment to account for credit risk.

Limitations include the lack of a single standardized definition for OISLibor, varying data availability, and potential confusion over sign conventions. Moreover, LIBOR is being phased out in favor of risk-free rates such as SOFR and SONIA, which has reduced the practical prominence of LIBOR-based measures in new transactions, though legacy instruments and historical analyses may still reference them.

See also: OIS rate, LIBOR, basis swap, SOFR, SONIA, basis.