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ESTR (Euro Short-Term Rate) is a new alternative reference rate for the Euro interbank lending market. It was introduced as a replacement for the current reference rate, the Euro Interbank Offered Rate (EURIBOR), which was phased out at the end of 2021.
One of the key advantages of ESTR is its accuracy. It is based on actual transactions in the Euro interbank lending market, providing a more reliable reference rate compared to EURIBOR. Additionally, ESTR is calculated and published by the European Money Markets Institute (EMMI), a non-profit organization based in Europe, ensuring greater transparency and fairness in the market.
Key features of ESTR include;
Pricing financial products: ESTR can be used as a reference rate to price financial products, such as loans and bonds, which are tied to the Euro interbank lending market.
Managing risk: By providing accurate and up-to-date information on the Euro interbank lending market, ESTR can help financial services professionals better understand and manage risk.
Evaluating performance: ESTR can be used to evaluate the performance of different financial products over time, and compare their relative value.
Setting benchmark rates: Financial services professionals can use ESTR as a benchmark rate to set the interest rates on financial products, such as loans and bonds.
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