€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.

The ISIN is EU000A2X2A25.[6]

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
  1. "Overview of the euro short-term rate (€STR)". Retrieved 11 December 2019.
  2. "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.
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