Euro short-term rate (€STR) (Ofer Abarbanel online library)

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.

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.

13 September 2018: The working group on euro risk-free rates recommends to replace the EONIA with the euro short-term rate.

12 March 2019: The ECB decided to use the acronym „€STR“.

2 October 2019: Start publishing the rate.

Characteristics

Characteristics of the €STR:

  • The €STR is 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.

The ISIN is EU000A2X2A25.

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:

  • 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.

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]

References

  1. ^“Overview of the euro short-term rate (€STR)”. Retrieved 11 December 2019.
  2. ^ Jump up to:ab c d “The euro short-term rate (€STR) methodology and policies” (PDF). ECB. June 2018. Retrieved 2019-09-07.
  3. ^“Private sector working group on euro risk-free rates recommends ESTER as euro risk-free rate”. ECB. 2018-09-13. Retrieved 2019-09-07.
  4. ^“ECB changes the acronym for its euro short-term rate”. ECB. 2019-03-12. Retrieved 2019-09-07.
  5. ^“ECB announces start date for euro short-term rate (€STR)”. ECB. 2019-03-14. Retrieved 2019-09-07.
  6. ^“Euro short-term rate (€STR)”. ECB. Retrieved 2019-09-07.
  7. ^“Euro short-term rate (€STR) questions and answers”. ECB. Retrieved 2019-09-07.
  8. ^“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.

Ofer Abarbanel – Executive Profile

Ofer Abarbanel online library

Ofer Abarbanel online library

Ofer Abarbanel online library

Ofer Abarbanel online library