€STR
Euro short-term rate (€STR) is a reference rate for the currency euro. The €STR is calculated by the European Central Bank (ECB) and is based on the money market statistical reporting of the Eurosystem. The working group on euro risk-free rates has recommended €STR as a replacement for the EMMI Euro Overnight Index Average (EONIA) as the Euro risk-free rate for all products and contracts.[1]
History
20 September 2017: ECB's Governing Council has decided to develop a euro short-term rate based on data collected by the Eurosystem for money market statistical purposes.[2]
13 September 2018: The working group on euro risk-free rates recommends to replace the EONIA with the euro short-term rate.[3]
12 March 2019: The ECB decided to use the acronym „€STR“.[4]
2 October 2019: Start publishing the rate.[5]
Characteristics
Characteristics of the €STR:[2]
- The €STR published by the ECB.
- It is based on the unsecured market segment. The ECB developed an unsecured rate, because it is intended to complement the EONIA. Furthermore, a secured rate would be affected by the type of the collaterals.
- The money market statistical reporting covers the 50 largest banks in the euro area in terms of balance sheet size.
- While the EONIA reflects the interbank market, the €STR extends the scope to money market funds, insurance companies and other financial corporations because banks developed significant money market activity with those entities.
Methodology
Overnight rate
The €STR is calculated using overnight unsecured fixed rate deposit transactions over €1 million.[2]
For each TARGET2 business day the €STR is calculated as a volume-weighted trimmed mean.
Steps of the calculation:[2]
- Ordering the transactions from the lowest rate to the highest rate.
- Aggregating the transactions at each rate level.
- Removing the top and bottom 25% in volume terms (trimming).
- Calculating the mean of the remaining 50% and rounding to the third decimal.
The €STR is published on every TARGET2 business day at 8:00 CET (reflecting the trading activity of the previous business day). If errors are detected, the €STR is revised and republished on the same day at 9:00 CET.[7]
Forward-looking term structure
An OIS quotes-based methodology as the €STR-based forward-looking term structure methodology is recommended as a fallback to Euribor-linked contracts. The working group will analyse further approaches.[8]
See also
References
- ^ "Overview of the euro short-term rate (€STR)". Retrieved 11 December 2019.
- ^ a b c d "The euro short-term rate (€STR) methodology and policies" (PDF). ECB. June 2018. Retrieved 2019-09-07.
- ^ "Private sector working group on euro risk-free rates recommends ESTER as euro risk-free rate". ECB. 2018-09-13. Retrieved 2019-09-07.
- ^ "ECB changes the acronym for its euro short-term rate". ECB. 2019-03-12. Retrieved 2019-09-07.
- ^ "ECB announces start date for euro short-term rate (€STR)". ECB. 2019-03-14. Retrieved 2019-09-07.
- ^ "Euro short-term rate (€STR)". ECB. Retrieved 2019-09-07.
- ^ "Euro short-term rate (€STR) questions and answers". ECB. Retrieved 2019-09-07.
- ^ "Recommendations of the working group on euro risk-free rates on the transition path from EONIA to the €STR and on a €STR-based forward-looking term structure methodology" (PDF). ECB. 2019-03-14. Retrieved 2019-09-07.
External links
- "Euro short-term rate (€STR)". ECB. Retrieved 2019-09-07.
- "Presentation of ESTER (Euro Short-Term Rate)" (PDF). ECB. 2018-11-09. Retrieved 2019-09-07.
- "List of reporting agents". ECB. Retrieved 2019-09-07.