Where is ESTR? (5)

 This is a follow up on previous post on Where is ESTR?, Where is ESTR? (2), Where is ESTR? (3) and Where is ESTR? (4).

It has been more than two months since the main CCPs have switch their PAI to ESTR in EUR and it should be the standard now. What do we see in the LCH data? Almost nothing! The monthly volume for ESTR OIS was less than 70 bn (USD equivalent), just  above 1/3 of what is was in January and February (see graph below). Not a very positive trend. The only positive trend, if I really have to find one, is that the volume for maturity above 2Y is increasing. With a notional of 23 bn, this is the highest since the start of ESTR.

 

This means a total volume for ESTR OIS of 774 bn since the start of the year. This is in contrast with the 62 trn in all OIS (EONIA and ESTR). ESTR-linked products are only 1.25% of all overnight-linked products (unchanged with respect to last month). 

 Were are only a little bit more than a week away from the EFFR to SOFR change for the collateral/PAI/discounting  at LCH and CME. Will the effect on the SOFR volumes be different? For the moment the SOFR volumes remain low, even if they have increased over September. The monthly volume at LCH was 391 bn, the highest since SOFR is cleared at LCH. Is it the start of a trend or simply participants preparing themselves for the big bang, its risk compensation and the related auction? One hint in the latter direction, is that the volume increased mainly in the long-dated swaps, while OIS are mainly traded on short maturities. We will know more in a couple of months time.

I was interviewed by journalist on my opinion about the SOFR PAI big bang and what could happen. I have mentioned my opinion in several presentations and blogs. I will summarize them in a forthcoming blog.

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