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6-Month LIBOR
6-Month LIBOR Definition, Calculation, Examples, and Links
LIBOR is calculated in 15 different maturities. The following provides background on one the maturities most commonly used as a benchmark for financial instruments such as loans.
6-Month LIBOR is a filtered average of rates charged by banks for unsecured, 180-day loans to other banks. The British Bankers’ Association (BBA) creates and disseminates LIBOR every business day at 11 am. The acronym LIBOR stands for London Interbank Offered Rate. The BBA has named “contributor banks” to provide their interbank lending rates. Specific groups of banks submit their rates in 10 different currencies, including the US Dollar, the British Pound Sterling, the Euro and the Japanese Yen.
The BBA averages the middle quartiles of the daily rate reports it receives on 6-month interbank loans. The result is the day’s 6-Month LIBOR benchmark. 6-Month LIBOR is an annualized rate. The following calculation determines the cost of funds for a loan of that duration:
Principal times rate
Divided by 365
Times 180Or:
(principal x rate / 365) x 180
6-Month LIBOR is a common benchmark for mortgages that are pegged to LIBOR rates. 6-Month LIBOR is also seen in the news as companies and countries borrow money and issue bonds with rates set at a designated margin above the index. Some examples:
- In August 2009, the World Bank announced a $400 million loan tranche to Ukraine with cost of funds at 6-Month LIBOR plus 17 basis points.
- In May 2009, China’s top oil producer, China National Petroleum Corp. sold $1 billion in three-year notes with a yield of 62 basis points above 6-Month LIBOR.
6-Month LIBOR Links: