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IBOR: Inter Bank Offered Rate

Fixed Income

An in-depth exploration of IBOR, its historical context, types, key events, and importance in global finance.

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The Inter Bank Offered Rate (IBOR) is a critical benchmark in global finance, representing the average interest rate at which banks offer to lend unsecured funds to other banks in the interbank market. This rate plays a pivotal role in the financial ecosystem, influencing a wide range of financial products and services.

Types of IBOR

Different financial hubs have their own versions of the IBOR:

  • LIBOR: London Interbank Offered Rate
  • EURIBOR: Euro Interbank Offered Rate
  • TIBOR: Tokyo Interbank Offered Rate
  • HIBOR: Hong Kong Interbank Offered Rate

Calculation

IBOR is calculated based on daily submissions from a panel of banks. Each bank estimates the rate at which it could borrow from other banks, and the average of these submissions determines the IBOR.

Importance

IBOR affects various areas of finance:

  • Loan Agreements: Many floating rate loans use IBOR as a reference.
  • Derivatives: Swaps, futures, and options are often tied to IBOR.
  • Financial Products: Mortgages, savings accounts, and other banking products may use IBOR for rate setting.

Example in Mortgages

A mortgage might be structured with an interest rate that is set at “LIBOR + 2%”. This means that if the LIBOR is 0.5%, the mortgage rate would be 2.5%.

  • SOFR: Secured Overnight Financing Rate, a replacement for LIBOR.
  • Swap Rate: The fixed rate in an interest rate swap agreement.
  • Credit Spread: The difference between IBOR and the risk-free rate.

FAQs

Why is IBOR important?

IBOR serves as a benchmark for numerous financial products, affecting interest rates on loans, mortgages, and derivatives.

What replaced LIBOR?

Alternatives like SOFR, SONIA, and ESTR have been developed to replace LIBOR.
Revised on Monday, May 18, 2026
Hong Kong Interbank Offered Rate (HIBOR)
Interbank Offered Rates