I only have limited knowledge of bootstrapping to calculate zero rates (spot rates) from libor-swap rates. I vaguely recall being told that libor-swap rates are an ok substitute for zero rates when interest rates levels are (high/low) and when the libor-swap curve is (steep/flat). Can someone tell me which choice in the parentheses are correct, and why? Thanks!
Flat trumps all and doesn’t matter if high/low. Interest rate levels are likely to be flatter if they are lower so low better. Better still is just to pull out your CFA books and brush up on your bootstrapping.
Thanks JoeyDV… flat and low.
flat and low makes sense. Flat = suggests risk is neutral (might be wrong choice of words). Market thinks risk today = risk tomorrow. Low = low risk, hence stability? Yea, I don’t think my choice of words is correct. Go with Joey’s answer.