The euro short-term rate (€STR) is the euro overnight money market interest rate
31 March 2021
The euro short-term rate (€STR) is a benchmark rate that reflects the unsecured overnight borrowing costs in euro of major euro area banks. As the replacement for the euro overnight index average (EONIA), the €STR is expected to be used as a basis for many kinds of financial contracts.
The European Central Bank (ECB) is the administrator of the €STR and is responsible overall for the determination of the rate as established in Guideline ECB/2019/19.
The €STR is calculated on the basis of actual money market transactions in which euro area banks receive overnight deposits from financial corporations, including both banks and non-banks. The data are based on daily ECB money market statistical reporting, which ensures a uniform methodology and enables harmonised statistics to be published for the euro area.
Between its launch in October 2019 and March 2020, the €STR was fairly stable, with only minor daily changes due to market activities. At the beginning of March 2020, the €STR increased and remained elevated for around a month. It then fell and has since moved downwards overall, with a few temporary fluctuations (see Chart 1).
To minimise the impact of outliers on the €STR, all interest rates below the 25th percentile and above the 75th percentile based on transaction volumes are removed from the calculation. To provide a transparent picture of the variation in interest rates on the underlying transactions, the interest rates at the 25th and 75th percentiles are also published daily.
On average, the rates at the 25th and 75th percentiles have been around -0.57% and -0.53% respectively.
Chart 1. Evolution of €STR interest rates since its launch on 2 October 2019 (percentages)
|■||25th percentile||■||€STR||■||75th percentile|
Source: ECB statistics.
For the first five months following its introduction, the volume of transactions used to calculate the €STR remained broadly stable, averaging around €32 billion per day over the period between 1 October 2019 and 28 February 2020, although there was a seasonal dip during the holiday period in late December and early January. The period since March 2020 has been slightly more volatile. The volume of daily transactions has generally increased relative to the earlier period, reaching a peak of €59 billion in April 2020.
On average, the five largest banks have accounted for around 54% of the total daily volume of transactions since 2 October 2019. This proportion has been relatively stable over time.
To ensure transparency, the daily transaction volumes used to calculate the €STR are published on the ECB’s website.
The euro short-term rate (€STR) was introduced on 2 October 2019 as a new unsecured overnight interest rate for the euro money markets. The €STR is designed to reflect how much a bank must pay when borrowing money overnight from other banks and financial institutions without providing collateral (this type of borrowing is referred to as “unsecured”).
As an interest rate benchmark or reference rate, the €STR is expected to play an important role both in the financial and banking system and in the economy as a whole. It provides a useful basis for all kinds of financial contracts, particularly in derivatives markets.
The €STR is gradually replacing the euro overnight index average (EONIA). While EONIA is an interbank lending rate, the €STR is based on borrowing transactions with a wider set of financial counterparties (not only banks). These transactions are reported under the Money Market Statistical Reporting (MMSR) Regulation (Regulation ECB/2014/48). The design and implementation of the €STR are intended to be consistent with international best practices as set out in the International Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks.
The wider set of counterparties compared with EONIA ensures that the €STR captures an active market and thus provides a robust reflection of the interest rate applied to unsecured overnight borrowing in the euro area. Since 2 October 2019, EONIA has been calculated by adding a spread of 8.5 basis points to the €STR. This EONIA rate will no longer be published after 3 January 2022.
How is the €STR calculated?
The €STR is published on each TARGET2 business day based on transactions in overnight unsecured fixed rate deposits. It is calculated as a volume-weighted trimmed mean rounded to three decimal places. This is done by: (i) ordering transactions over €1 million from the lowest rate to the highest rate; (ii) aggregating the transactions occurring at each rate level; (iii) removing the top and bottom 25% in volume terms; and (iv) calculating the mean of the remaining 50% of the volume-weighted distribution of rates.
A contingency calculation is triggered if the number of reporting banks is less than 20 or if five banks account for 75% or more of total transaction volumes. In these cases, the €STR is calculated by combining the rate from the previous TARGET2 business day with the rate that would result from applying the standard methodology to the available trades on the day in question, using a volume-weighted average of the two days’ data.
The ECB publishes the €STR at 08:00 CET. If the ECB does not publish the €STR by 09:00 CET, the rate of the previous TARGET2 business day applies.
How are data quality checks performed for the €STR?
The data quality management process includes a set of validation and quality checks to verify the accuracy of the data in compliance with the MMSR Regulation.
The ECB and national central banks have developed these checks to guarantee that the quality standards are met. The purpose of the validation checks is to verify that the information submitted by the reporting agents complies with the required technical standards and to identify transactions with missing or possibly erroneous information. The quality checks use predefined algorithms to detect outliers or unusual transactions.
A statistical non-compliance procedure is carried out alongside the data quality management process. The aim of this procedure is to monitor and enforce reporting agents’ compliance with the minimum standards. These minimum standards are defined in the MMSR Regulation.
The methodology and policies are reviewed regularly to ensure that the underlying interest is adequately measured and captured by the methodology and that the procedures and policies are effective.
To improve transparency, the following related information is published along with the €STR: total nominal value of eligible transactions before trimming; number of banks reporting transactions before trimming; number of transactions before trimming; percentage of total nominal amount reported by the five largest contributing banks that day; calculation method (normal or contingency); and rates at the 25th and 75th percentiles (to two decimal places).
Where are the €STR and related statistics released?
The €STR is published on the ECB’s website at 08:00 CET, via the ECB’s Market Information Dissemination platform and in the ECB’s Statistical Data Warehouse. The rate is subject to revision up to 09:00 CET, but this has not yet happened.
Definition of terms used in this Insight
The money market statistical reporting (MMSR) dataset is collected on the basis of transaction-by-transaction data from a sample of major euro area reporting agents and provides information on the secured, unsecured, foreign exchange swap and overnight index swap euro money market segments. The €STR is based on unsecured segment transactions. The reporting of the money market data is based on the MMSR Regulation.
In the MMSR dataset, transactions are broken down into borrowing and lending.
Borrowing refers to transactions in which the reporting bank receives euro-denominated funds with a maturity of up to and including one year.
Lending refers to transactions in which the reporting bank provides euro-denominated funds with a maturity of up to and including one year.
The unsecured market segment is one of four money market segments where reporting agents report to the ECB or to their relevant national central bank. The unsecured market segment covers:
- all borrowing denominated in euro with a maturity of up to and including one year from financial corporations, general government and non-financial corporations classified as “wholesale” under the Basel III liquidity coverage ratio framework, in particular unsecured deposits and call accounts, and the issuance of fixed rate or variable rate short-term debt securities;
- all lending denominated in euro to other credit institutions with a maturity of up to and including one year via unsecured deposits or call accounts, or via the purchase from the issuing credit institutions of fixed rate or variable rate short-term debt securities with an initial maturity of up to and including one year.
Transactions reported with overnight maturity are those conducted and settled on the same day and maturing on the following TARGET2 business day. The maturity of call accounts and other unsecured borrowing redeemable at notice is always classified as overnight, except in the case of instruments that are not redeemed, terminated or closed overnight.
The deal rate is the interest rate, expressed in accordance with the ACT/360 money market convention, at which the deposit was concluded and at which the cash amount lent is remunerated.
Total nominal amount refers to the sum of the absolute amounts of all eligible transactions conducted during a given day.
Find out more about the euro short-term rate (€STR):
For data on the euro short-term rate (€STR), see the ECB’s Statistical Data Warehouse.
All data series used in this Insight can be found in the downloadable file at the bottom of the Insight.