The Euro Short-Term Rate (€STR) is a

reference rate A reference rate is a rate that determines pay-offs in a financial contract and that is outside the control of the parties to the contract. It is often some form of LIBOR rate, but it can take many forms, such as a consumer price index, a house pric ...

for the

euro The euro (currency symbol, symbol: euro sign, €; ISO 4217, currency code: EUR) is the official currency of 20 of the Member state of the European Union, member states of the European Union. This group of states is officially known as the ...

. This

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...

can be used as the rate referenced in financial contracts that involve the euro. €STR is administered and calculated by the

European Central Bank The European Central Bank (ECB) is the central component of the Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's Big Four (banking)#International ...

(ECB), based on the

money market The money market is a component of the economy that provides short-term funds. The money market deals in short-term loans, generally for a period of a year or less. As short-term securities became a commodity, the money market became a compo ...

statistical reporting of the

Eurosystem The Eurosystem is the monetary authority of the eurozone, the collective of European Union member states that have adopted the euro as their sole official currency. The European Central Bank (ECB) has, under Article 16 of its Statute,

. According to the indications of the working group on euro

risk-free rate The risk-free rate of return, usually shortened to the risk-free rate, is the rate of return of a hypothetical investment with scheduled payments over a fixed period of time that is assumed to meet all payment obligations. Since the risk-free r ...

s, €STR replaced the Euro Overnight Index Average ( EONIA) as the Euro risk-free rate for all products and contracts.

History

20 September 2017: ECB's Governing Council decided to develop a euro short-term rate based on data collected by the Eurosystem for money market statistical purposes. 13 September 2018: the ''working group on euro risk-free rates'' recommended to replace the EONIA with the euro short-term rate. 12 March 2019: the ECB decided to use the acronym "€STR". 2 October 2019: the ECB started publishing the rate.

Characteristics

Characteristics of the €STR: * The €STR is published by the ECB. * It is based on the unsecured market segment. The ECB developed an unsecured rate to replace 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 EONIA reflected the interbank market, €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

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is EU000A2X2A25.

Methodology

Overnight rate

The €STR is calculated using overnight unsecured fixed rate deposit transactions above €1 million. For each

TARGET Target may refer to: Warfare and shooting * Shooting target, used in marksmanship training and various shooting sports ** Bullseye (target), the goal one for which one aims in many of these sports ** Aiming point, in field artille ...

business day the €STR is calculated as a volume-weighted trimmed mean. Steps in the calculation: * Ordering the transactions from lowest to 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%, rounding to the third decimal. The €STR is published on every TARGET business day at 8:00

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(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.

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 The Euro Interbank Offered Rate (Euribor) is a daily reference rate, published by the European Money Markets Institute, based on the averaged interest rates at which Eurozone banks borrow unsecured funds from counterparties in the euro wholes ...

-linked contracts. The working group will analyse further approaches.

References

External links

* * * {{DEFAULTSORT:ESTR Eurozone Banking Interest rates