What is SWESTR?

Why was SWESTR introduced?

SWESTR was introduced to replace less robust interest rate benchmarks and to align Sweden’s financial markets with international standards for overnight reference rates.

Key reasons for SWESTR’s introduction include:

• Enhancing transparency and reliability in the overnight lending market.
• Supporting monetary policy implementation by providing a robust benchmark rate.
• Facilitating risk management and valuation of financial instruments in SEK.

SWESTR is part of a global movement to improve benchmarks, alongside rates like SOFR (US), €STR (Eurozone), and SONIA (UK).

How is SWESTR calculated?

SWESTR reflects the volume-weighted average interest rate of eligible overnight unsecured loans in SEK. The Riksbank collects transaction data daily from reporting banks, ensuring transparency and accuracy.

SWESTR calculation methodology

Eligible transactions:

• Unsecured overnight loans.
• Loans in Swedish kronor (SEK).
• Transactions between financial institutions with sufficient volume.

Volume-weighted average:

• Larger transactions contribute proportionally more to the final rate.

Calculation Example

SWESTR=
(1,500,000×0.40)+(2,000,000×0.45)+(2,500,000×0.43)
1,500,000+2,000,000+2,500,000​

SWESTR = 0.43%

Publishing time: SWESTR is calculated and published by the Riksbank each morning at 9:00 AM CET.

The role of SWSTR in the financial market

SWESTR serves as the foundation for Sweden’s short-term interest rate market. Its key roles include:

1. Monetary policy implementation

The Riksbank uses SWESTR to monitor overnight lending and assess market liquidity conditions.

2. Risk management

Banks and corporations rely on SWESTR for short-term liquidity management and interest rate risk hedging.

3. Valuation and benchmarking

SWESTR is used as a benchmark for financial contracts, including Overnight Index Swaps (OIS) in SEK markets.

SWESTR vs Other overnight rates

Impact of SWESTR on market participants

SWESTR has a wide-reaching impact across Sweden’s financial markets:

• Banks and financial institutions:
  Use SWESTR to price overnight loans, manage funding costs, and benchmark short-term interest rate products.
• Corporates and investors:SWESTR serves as a reliable rate for managing liquidity and interest rate exposures.
• Derivatives market:SWESTR underpins SEK-denominated derivatives like OIS (Overnight Index Swaps), providing a risk-free benchmark for hedging.

Example: A Swedish corporation borrows SEK 10 million overnight at an interest rate linked to SWESTR + 0.05%. If SWESTR is published at 0.21%, the borrowing cost would be:

0.21% + 0.05% = 0.26%

This allows companies to accurately plan and manage short-term financing costs.

Conclusion

SWESTR is crucial for ensuring transparency, stability, and efficiency in Sweden’s short-term money markets. As the Riksbank’s official benchmark rate, it plays a critical role in:

• Supporting Sweden’s monetary policy framework.
• Enhancing market confidence in SEK-denominated transactions.
• Aligning Sweden with global benchmark rate reforms.

TraditionData provides comprehensive and accurate access to benchmark rates like SWESTR, empowering market participants to make informed decisions with reliable overnight reference data.