IBOR transition update: €STR grabs a foothold?
In the latest development in the IBOR transition, on the weekend of 25 July, we saw the major CCPs perform the much-anticipated Euro discounting and price alignment transition from using EONIA to EuroSTR (a.k.a. €STR) for all Euro OTC interest rate products. We understand that all compensation payments have now settled, many of which were straight through processed into firms' risk systems by MarkitSERV's Netting Synchronization Service.
The question market watchers have been asking is would the hereto anaemic trading activity in EuroSTR pick-up following the switchover of discounting and PAI/PAA at the major CCPs?
Well after one week we have the answer… Prior to the switchover, in the first 18 trading days of July, EuroSTR made up just 5% of all Euro OIS trades and since the switchover, the last 5 trading days of July, it has made up just over 11% of all Euro OIS trades. So, we are far from reaching a tipping point but it's certainly a significant jump in EuroSTR liquidity.
For context when you include IRS referencing EURIBOR in the denominator EuroSTR jumped from 0.6% to 1.6% on the same basis.
The challenge for many market commentators has been the available public reporting; (i) many Euro swaps do not have a US nexus and thus are not subject to the US CFTC Part 43 real-time public reporting rules and (ii) the Euro swaps subject to MiFIR Trade Reporting to an APA, are subject to a 4-week deferral.
Note: The calculations are based on (i) all new single currency fixed versus floating interest rate swaps referencing EuroSTR / all new single currency fixed versus floating interest rate swaps referencing either EuroSTR or EONIA and (ii) all new single currency fixed versus floating interest rate swaps referencing EuroSTR / all new single currency fixed versus floating interest rate swaps referencing either EURIBOR, EuroSTR or EONIA.
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