Marc Henrard - Multi-curve framework

At a recent ISDA meeting, a FCA representative, Edwin Schooling-Latter, positively commented on the achievability of term versions of RFRs. His comments are presented in a recent Risk article titled '' Term versions of RFRs will work – FCA official ''. This comments goes in the direction of the opinion of many (but not all) market participants but is in opposition to many regulators public comments (in particular the FSB OSSG) and against the indication in the FAQ associated to the ISDA consultation on IBOR fallback . The term rates are not even an option in the ISDA consultation. There are two different issues associated to the "term rates" question: the IBORs fallback and the standard for new trades. For new trades , you can change the rules and do what you want/is the most convenient in the circumstances. For legacy trades , the fallback changes the reference rate when the contractual one is not available, but does not change the other aspects of the cont

The ECB has announced the result of the public consultation about the alternative EUR overnight benchmark. As expected, the ESTER rate, to be published by the same ECB, has been recommended by the Working Group on 13 September 2018 be used as the risk-free rate for the euro area. I still don't like the name risk-free rate (RFR). As described on the ECB ESTER page , " ESTER will reflect the wholesale euro unsecured overnight borrowing costs of euro area banks ". The rate is for unsecured and credit-risky transactions. The world is now divided in two groups, one where the reference overnight benchmarks are secured overnight rates - e.g. USD and CHF - and one where the reference overnight benchmarks are unsecured overnight rates - e.g. EUR and GBP. That can only increase the cross-currency basis and give more work to quants. On the secured rate front, we will soon have two competing term rates: OIS-like derivatives based on repo overnight rates and term repos. What is the l