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IBOR transition update: €STR has an August holiday?

21 September 2020 Kirston Winters

After the recent uptick in EuroSTR (a.k.a. €STR) volumes in late July driven by the major CCPs switching from using EONIA to EuroSTR for discounting all Euro OTC interest rate products, we looked at August data to see if this was just a blip or whether EuroSTR in fact held its increased share of the market throughout August.

In June, prior to the CCP discounting switchover, which took place over the weekend of 25 July, EuroSTR had made up just 4.1% of all Euro OIS trades. In July, EuroSTR made up 6.6% of all EURO OIS trades, mostly driven by higher volumes in the last 5 trading days of the month. In August we observed a slight decline with EuroSTR at 6.3%, against a backdrop of softer seasonal volumes.

However, when you look at aggregate notional, EuroSTR was 1.7% in June, but rose to 2.6% in July driven by a higher share of transactions. In August, there has been a significant rise once again to 3.5% despite a small reduction in its share of the transactions executed.

We are far from reaching a tipping point, but it is certainly promising in terms of EuroSTR liquidity. For context, when you include IRS referencing EURIBOR in the denominator EuroSTR was just 0.8% by volume and 1.2% by aggregate notional of the complete EuroSTR swaps market.

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.

Coming next is the CCP discounting switch from Fed Funds to SOFR for all cleared USD OTC interest rate products on 16 October 2020, it will be interesting to see the impact that has on SOFR volumes.

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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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