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I'm working on a Interes Rate Risk in Banking Book model for EVE calculation. It doesn't matter if you know what it is or not, I just need help with one step. That step is the creation of risk free yield curve for Euro currency. I'm using Moorad Choudhry book 'Banking Principles 2nd'.

In one of the examples, he provided data for the creation of risk-free yield curve via swap rates.

Here is the picture:

enter image description here

Data are from Reuters, at date 31/12/2018.

TN  -0.435028
1W  -0.466834
1M  -0.398161
2M  -0.396682

Can some help me what to look to find these data for any given day, possibly at Bloomberg?

Looks like RIC is 0#EURZ=R.

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    $\begingroup$ Since IBOR and EONIA are gone, you use Euro Short-Term Rate (ESTR) as your credit risk free swap curve. Be precise with the terminology- a nominal curve is not inflation risk free. $\endgroup$
    – Dimitri Vulis
    Jan 9 at 21:53

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For Bloomberg, there are technically two swap curves that could work:

-ICVS 133 for EUR OIS and

-ICVS 514 for €STR.

I agree with @Dimitri Vulis that you should use €STR. With Bloomberg, you will have a few issues here though:

  • The user agreement with a terminal license will not allow you to use it for Enterprise purposes without a separate license
  • You cannot download RFR rates (SOFR, €STR, ...) with the curves toolkit without an additional license as a result of this.

I cannot speak of Reuters but I think it will be more or less the same because our treasury also uses a data license to feed Reuters data into Kondor.

Some details:

EBA final report

..., since there is no universal risk-free spot rate curve per currency, it is left to institutions to select it, in line with paragraph 115(n) of the 2018 EBA GL.

Now 115(n) is not very specific and states that

An appropriate general ‘risk-free’ yield curve per currency should be applied (e.g. swap rate curves). That curve should not include instrument-specific or entity-specific credit spreads or liquidity spreads.

However, the BIS is a bit more specific and writes

discount factors must be representative of a risk free zero-coupon rate. An example of an acceptable yield curve is a secured interest rate swap curve

Although ESTR is unsecured, (explanation for this choice can be found on the ECB Website) it is the used as the official risk free rate for price alignment interest and discounting at major CCPs and it would be difficult to argue why one would not use €STR based on my teams opinion for IRRBB computation.

For example, transition to €STR happened in July 2020 on LCH Group and the CME; Link for CME announcement

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  • $\begingroup$ Thank you so much, this was helpful. This is what I got from my Treasury. ibb.co/SJyvM3k For IRRBB discounting purposes, should I use OIS curve, or Zero rates curve, on the bottom of the image, and what is rationale behind it? What I (think that) understand is that we have €STER which is overnight rate at which banks borrow from each other. Next, we have Overnight Swap Rates on €STER for terms from one week up to 50 years, and that is fixed interest rate that one have to pay to receive €STER in return, on some notional amount. Derived zero rate is a mystery :). $\endgroup$
    – Nikola
    Jan 25 at 9:32
  • $\begingroup$ You can find a detailed white paper on the help page of ICVS. This answer should help you understand the difference too. $\endgroup$
    – AKdemy
    Oct 20 at 20:14

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