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.

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. 13 September 2018: The ''working group on euro risk-free rates'' recommends to replace the EONIA with the euro short-term rate. 12 March 2019: The ECB decided to use the acronym “€STR“. 2 October 2019: Start 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, 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

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Methodology

Overnight rate

The €STR is calculated using overnight unsecured fixed rate deposit transactions over €1 million. For each TARGET2 business day the €STR is calculated as a volume-weighted trimmed mean. Steps of the calculation: * 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.

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.

References

External links

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