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IBOR transition update: €STR has an August holiday?
21 September 2020Kirston 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.
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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