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Commerzbank On Recent 3-Month Euribor-€STR Widening

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After the 3-month Euribor-€STR spread hit a new high on Friday, Commerzbank note the following:

  • “It may be a coincidence that EMMI begins phasing in changes to the fixing methodology around mid-May 2024. This reform removes Level 3 contributions ('educated guesses') and changes the calculation of Level 2.3. Level 3 accounted for 39% of the contributions and 2.3 for around 27% in March, so they are significant. Going forward, some 2/3 of the fixing will be based on 2.3.”
  • “However, a look at the proposed changes suggests that the fixings should be more, not less, aligned with €STR swaps.”
  • “Level 2.3 has been changed so that the Market Adjustment Factor now uses the fallback rate, which closely tracks €STR swaps.”
  • “It also includes a credit component, but if properly calibrated this should not lead to higher fixings on days when the STOXX banks index hit multi-year highs, like last week.”
  • “Note also that 1- and 6-month fixings fell to new lows, so only 3-month stands out.”
  • “Overall, this development clearly warrants close monitoring - and it may lead to further discussions as to why the euro area is the last man standing still defending IBOR fixings!”
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After the 3-month Euribor-€STR spread hit a new high on Friday, Commerzbank note the following:

  • “It may be a coincidence that EMMI begins phasing in changes to the fixing methodology around mid-May 2024. This reform removes Level 3 contributions ('educated guesses') and changes the calculation of Level 2.3. Level 3 accounted for 39% of the contributions and 2.3 for around 27% in March, so they are significant. Going forward, some 2/3 of the fixing will be based on 2.3.”
  • “However, a look at the proposed changes suggests that the fixings should be more, not less, aligned with €STR swaps.”
  • “Level 2.3 has been changed so that the Market Adjustment Factor now uses the fallback rate, which closely tracks €STR swaps.”
  • “It also includes a credit component, but if properly calibrated this should not lead to higher fixings on days when the STOXX banks index hit multi-year highs, like last week.”
  • “Note also that 1- and 6-month fixings fell to new lows, so only 3-month stands out.”
  • “Overall, this development clearly warrants close monitoring - and it may lead to further discussions as to why the euro area is the last man standing still defending IBOR fixings!”