European traders who execute in the repurchase agreement and sovereign bond markets can now do so using a new repo rate index.
Following publication of ISDA definitions, ICAP Information Services and MTS today announced they are expanding the RepoFunds Rate indices to include RepoFunds Rate Euro (RFR Euro), a daily repo index for Eurozone sovereign bonds. The new RFR index, according to ICAP, paves the way for better hedging and more accurate price discovery.
The new index, RFR Euro, is derived from eligible repo transactions that involve sovereign bonds issued by any Eurozone country as collateral. The index is based on centrally cleared, electronically executed one business day repo transactions executed on BrokerTec, ICAP’s global electronic fixed income trading platform, and MTS.
“The RepoFunds Rate indices are robust and replicable benchmarks for derivatives and the development of a swap market,” said John Edwards, managing director at BrokerTec. “Following publication of the definitions by ISDA in April this year for the original three RFR indices, a suitable derivatives market can now develop to provide both a hedging mechanism and offer a source of price discovery for term financing of government bonds.”
Designed as transparent and trade-backed references, the RepoFund Rate indices adhere to the IOSCO principles for financial benchmarks.
RepoFunds Rate is a series of daily euro repo indices which reflect the effective cost of secured funding in Eurozone sovereign bond markets. Launched in 2012 following consultation with the repo community, the current indices (RFR Germany, RFR France and RFR Italy) measure the cost of funding sovereign bonds issued by their respective countries.
“By providing a broader measure of the cost of financing sovereign bonds from issuers in the Eurozone, it complements the existing country-specific RepoFunds Rate indices,” said Robert Walton, director of index services at ICAP.
The three country specific RepoFunds Rate indices provide robust and relevant references for each of these separate sovereign bond markets, the new RFR Euro index gives euro cash investors, treasurers, bond traders and bond investors a benchmark for the whole Eurozone backed by over $200 billion in cleared transactions collateralized with sovereign bonds.
The indices are published at the end of each business day and were launched in response to industry interest and demand, reflecting the importance of secured funding and the need for a suitable reference for derivatives for hedging and pricing.
Typically, the traded volume of eligible repo transactions across the two trading platforms is ?230 billion per day (single counted).
