Is the understanding right that OIS can be accessed only by banks whereas IRS is for corporates.

Also, since corporates borrow at Libor + spread, to hedge Libor I use IRS.

Banks can borrow overnight at the overnight rate for which I use OIS to fix.

It will also always be that OIS is lesser than IRS, right?


A corporate that has an ISDA master agreement to trade Interest Rate Rwaps (IRSs) with a bank will undoubtedly be capable of also trading Overnight Indexed Swaps (OISs), as will any type of counterparty for that matter.

A corporate whose loan is tied to floating LIBOR will hedge using an IRS to convert to fixed. Hedging with an OIS would introduce unnecessary LIBOR / OIS basis risk.

The OIS market is for overnight unsecured lending. How the OIS fix is determined varies in different currencies.

Generally OIS is lower than LIBOR. However this is not always true. 1M EURIBOR was lower than EONIA (EUR OIS) for a prelonged period of time, primarily for two reasons; the inherent differences by which EONIA and EURIBOR fixings were calculated, and the LCR (Basel III Liquidity Coverage Ratio) which creates a natural aversion to borrowing money for a term of only 1M, hence the demand is restricted and the rate fell.

  • $\begingroup$ then all corporates would want to use OIS right, why get into LIBOR? $\endgroup$ – Shyam Apr 17 at 3:45
  • $\begingroup$ The rate at which a corporate repays a loan is not based on the index (OIS or LIBOR) it is based on their credit worthiness. A corporate should hedge with whatever the terms of their floating rate loan are. Historically Libor has been chosen for its widely available publication and liquidity of IRSs. This may change in the future $\endgroup$ – Attack68 Apr 17 at 5:09
  • $\begingroup$ ok, so fundamentally then what is the difference between IRS and OIS. $\endgroup$ – Shyam Apr 17 at 7:08
  • $\begingroup$ Libor is still important, for the time being. But in the future other reference rates may win out. $\endgroup$ – Alex C Apr 17 at 16:11

protected by Community Apr 19 at 10:46

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