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The return of swap rates

Tracking interest rate risk in FRED

First, some background on swaps: Let’s say you’re borrowing at an adjustable interest rate that fluctuates along with the LIBOR (London Inter-Bank Offered Rate). Let’s also say you’re not so comfortable with the LIBOR’s fluctuations. You can engage in a swap and get someone else to pay that fluctuating interest rate for you, while you pay them a constant interest rate. The constant rate you pay is the swap rate. Now the swap rate stays constant during the lifetime of each individual contract, but the swap rate you can expect to pay for a new contract changes all the time; in fact, many swap rate series in FRED are updated daily at various times.

So what’s interesting about all this? The graph shows the 12-month swap rate, which combines the old (red line) and new (blue line) sources of the data,* and the LIBOR. Note that the swap rate and the LIBOR are different. This difference has to do with expectations of the future evolution of the LIBOR, risks attached to the LIBOR and the swap contract, and the implicit insurance that you get from a swap. Notice that the difference increased pretty significantly at the time of the financial crisis; it has narrowed recently but is still noticeable. If interest rates have stayed quite low, what’s behind these changes?

There are at least three possible factors: First, a swap carries the additional risk that your counterparty may default, in which case you’ll be on the hook for paying the interest. That risk of default may have increased—or at least the perceived risk may have increased. Second, there have been doubts in recent years that the LIBOR may not accurately or transparently reflect market rates. Third, expectations about the evolution of the LIBOR during the length of the swap contract may have trended away from the current value more than they had in the past.

*NOTE: FRED had included swap rate data from the Board of Governors of the Federal Reserve System until the series were discontinued in 2016. FRED has since replaced—swapped?—those important financial data for data now supplied by IBA (Intercontinental Exchange Benchmark Administration).

How this graph was created: Search for “1 year swap rate,” select (i) the “ICE Swap rates, 11:00 A.M.” 1-year/percent/daily series based on the U.S. dollar and (ii) the “1-Year Swap Rate (Discontinued)” percent/daily series and click “Add to Graph.” (You can also look through the ICE swap rate release.) From the “Edit Graph” panel, use the “Add Line” tab to search for and select the 12-month LIBOR rate. Finally, adjust the dates to start on 2000-07-01.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: DSWP1, ICERATES1100USD1Y, USD12MD156N

Hidden figures in homeownership

New homeownership rates by race and region

FRED recently added U.S. Census Bureau data on homeownership rates by race. The rates for each group, shown in the top graph, basically reflect the groups’ positions in the wealth distribution.

Changes in the homeownership rate are driven by small seasonal factors and longer trends. There was a decrease for all groups after 2006, which could reasonably be attributed to the Financial Crisis. Rates rebounded soon after for all groups except African Americans, whose rate has trended down pretty steadily since then.

This last fact could be due to regional differences: That is, homeownership rates could be decreasing in certain geographical areas where more African Americans live. The graph below shows very large sections of the country (Census regions), but doesn’t indicate any steady declines in any areas, including the South. So something else is at work that simply isn’t visible here.

How these graphs were created: On the Housing and Homeownership release table, select the series you want displayed and click “Add to Graph.”

Suggested by Christian Zimmermann.


A closer look at labor in the U.S.

BLS state-level labor force participation rates

The U.S. Bureau of Labor Statistics collects all kinds of data on the labor force, employed persons, unemployed persons, and unemployment rates. FRED now offers the BLS’s labor force participation rates for the individual 50 states and the District of Columbia. With this new addition to FRED, we can easily track a state’s labor force participation rate over time and compare performance across states.

By the way, the labor force participation rate is the number of all employed and unemployed workers as a percentage of the total population. By “unemployed,” we mean those actively seeking employment; and by “total population,” we mean the civilian noninstitutional population 16 years and older.

The first graph shows labor force participation rates for each state of the Eighth District (the region served by the St. Louis Fed) plus the rate for the U.S. overall since January 1976. In February, the national rate was 63.2%, its highest level since September 2013. Three states in the District had higher participation rates in February than the national average: Indiana (65.2%), Illinois (64.6%), and Missouri (63.6%). Mississippi (55.4%), Arkansas (57.9%), Kentucky (59.0%), and Tennessee (61.0%) had rates below the national average. While peer comparisons are important, it’s also valuable to consider performance over time.

The second graph shows District state performance for the past year—that is, the year-over-year change in the labor force participation rate for each month. The year-over-year participation rate for the nation has improved for the past six consecutive months. Indiana shows the strongest and most consistent improvement in labor force participation, with a year-over-year increase in each month. In contrast, Missouri and Mississippi have declining participation rates, with negative changes each month. Arkansas also has had mostly negative changes each month, but in March had its first year-over-year increase since January 2018.

How these graphs were created: For the first graph, search for “Civilian Labor Force Participation Rate” and click “Add to Graph.” From the “Edit Graph” menu, use the “Add Line” tab to find seasonally adjusted state-level labor force participation rates (aka “LBSSA” in FRED). Add the corresponding series for each state: Arkansas (LBSSA05), Illinois (LBSSA17), Indiana (LBSSA18), Kentucky (LBSSA21), Mississippi (LBSSA28), Missouri (LBSSA29), and Tennessee (LBSSA47). For the second graph, take the first and use the “Format” tab to select “Bar” as the “Graph Type.” From the “Edit Line” tab, select “Change from Year Ago, Percent” for “Units.” Select “Copy to All.” Finally, select “1Y” in the options listed just above the graph to adjust the x-axis. The 102 state-level labor force participation rates (seasonally adjusted and non-adjusted series for the 50 states plus D.C.) can all be found in the corresponding release table.

Suggested by Kathryn Bokun and Kevin Kliesen.

View on FRED, series used in this post: CIVPART, LBSSA05, LBSSA17, LBSSA18, LBSSA21, LBSSA28, LBSSA29, LBSSA47

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