UK Base Rate curve construction

donal · June 30th, 2010, 10:28 am

Hi all,I need to construct a forward curve for the UK base rate. I'm stuck at square one as I only have one data point - the official base rate for borrowing overnight, currently 0.5%.Are there swaps/ futures/ other instruments from which I can imply forward rates for the Base Rate? If not, are there any proxies that are typically used by market participants?Cheers,Donal

untwigged · June 30th, 2010, 10:57 am

Good overview from the BOE

Martinghoul · June 30th, 2010, 2:18 pm

untwigged's excellent link is a good starting point. In GBP, the closest you can probably get is building the SONIA curve, which, I think, should work for your purposes (SONIA - base rate basis is relatively stable). You can use either term SONIAs or MPC meeting-dated fwd SONIAs or a combination of the two.

donal · July 1st, 2010, 3:26 pm

Untwigged/ Martinghoul - many thanks, very useful stuff.Cheers,Donal