Trying to understand various risk factors for a EURUSD swap.
While I understand why a EURUSD swap would have USD LIBOR, EURIBOR, EURUSD currency as risk factors, why is it that it would also have EUR 6M3M sensitivity?
Thank you in advance!
The dominant IRS float tenor at longer maturities for EUR is 6m Euribor. So we assume that the EUR 3m leg of the xccy basis swap is constructed from a 6m IRS and therefore also 3s6s EUR basis.
In the interbank world there will also be risk contributions from the EONIA or FedFund discounting, via OIS or again basis (3sOIS). These sensitivities are generally much smaller than the forward rate sensitivities.