€STR Discounting Switch

I’m sure that I am not the only one sat here wondering how the switch from EONIA to €STR discounting went at the CCPs over the weekend? As far as I understand it, the change in valuation (cash compensation) amounts should have settled on Monday (July 27th) morning.

Will this switch lead to activity in €STR markets?

We also take this opportunity to introduce the ISDA-Clarus RFR Adoption Indicator. Launched by ISDA, it is a monthly indicator to monitor the adoption of alternative risk-free rates (RFRs) in derivatives trading. It was created in conjunction with Clarus.

Learn more about this important tool for IBOR transition here.

Monday July 27th 10:00am CET

We have seen the first €STR swap reported to US SDRs today! This is great news, as European transparency continues to be pretty useless. It is unlikely we will see any €STR swaps reported in real-time to the APAs.

Therefore, focusing on US SDR data, we’ve already seen a 30Y swap executed this morning:

  • €STR OIS
  • 30Y maturity (!)
  • EUR8m notional
  • Fixed Rate: -0.20%
  • Cleared
  • Executed off-SEF

Great to see such a long maturity trade already.

Surprisingly, however, we’ve also seen an EONIA swap. Shouldn’t market-makers be more motivated to show prices versus €STR now? €16.5k DV01 has traded in the 2Y EONIA swap out of the Sep20 IMM.

We’ll mainly keep an eye on the US data today and tomorrow, and we might see some €STR activity at European APAs – you never know!

We’ll update this blog periodically if we see anything meaningul in €STR swaps.

Monday 12:00 CET

Well, this feels a bit like SONIA day again. There have now been 6 EONIA trades reported to SDRs, €365k DV01 in total, with maturities ranging from 1M to 30Y. Whilst in the €STR corner, we are still stuck wtih a single, solitarity trade:

Monday 15:00 CET

That early promise of €STR activity seems to have dissolved. There has been just one €STR trade today. Contrast that to a €1m+ DV01 of EONIA traded, accounting for €25bn+ in notional terms. Tenors of EONIA ranging from 1 month out to 30Y.

No one else trading €STR today?

Monday 16:30 CET

Finally, more €STR trades! A flurry of activity in a 20 minute period. We’ve now seen €2.7bn+ in notional traded in €STR swaps from 3M out to 30Y maturities.

To put this in perspective, today is already the 3rd largest day in terms of €STR notional reported to SDRs. Good to have something positive to say!

It would be remiss of me not to point out how much trading acitvity we’ve had in EONIA though! €27.2bn+ of notional, in maturities out to 40Y. 47 trades in total.

Still, let’s see if €STR volumes can hit a record today?

Tuesday 08:30 CET

There were no more €STR trades after our final post yesterday, meaning we fell short of hitting new record volumes in €STR yesterday. That is pretty underwhelming I guess?

However, progress is being made, with total €STR volumes in July already hitting a record with a handful of trading days left:

We’ll keep this blog open again today, just in case we see a significant pick-up in €STR activity now that the dust has settled on the discounting switch.

Tuesday 17:30 CET

Almost nothing to report today in €STR space. We have just had two tiny test trades (€1m 1Y) hit the SDRs, so maybe not all market participants have the necessary infrastructure yet to trade €STR in earnest:

However, good news from Linkedin, where Eurex report a successful transition to €STR discounting – bravo!

Wednesday 11:30 CET

Wrapping this blog up with some good news – there has been a 30Y trade and a 9Y trade since our previous post in €STR. Hardly blog-worthy news in normal times, but we’ll be keeping a very close eye on €STR activity going forward:

Introducing the ISDA-Clarus RFR Adoption Indicator

In the week that the switch to €STR discounting has taken place, it is apt to introduce the first publication of the ISDA-Clarus RFR Adoption Indicator. This measures the amount of risk-weighted RFR activity in derivatives markets each month.

In terms of €STR markets, we saw almost no activity during May and June 2020:

ISDA-Clarus RFR Adoption Indicator June 2020

You can check-out the first pulication of the ISDA-Clarus RFR Adoption Indicator here, read the ISDA press release, and analyse the whitepaper. This new tool will allow us to systematically track €STR activity levels in the future.

It is a great example of how data combined with risk analytics can produce exceptionally powerful information.

The ISDA-Clarus RFR Adoption Indicator is built using Clarus Microservices.

Stay informed with our FREE newsletter, subscribe here.

Leave a Reply

Your email address will not be published. Required fields are marked *