WORKING PAPER EONIA INDEXED BONDS

Transcription

1 WORKING PAPER EONIA INDEXED BONDS PARIS, 25 TH MARCH 2010 Comité de Normalisation Obligataire/The French Bond Association Association régie par la loi du 1er juillet rue du Mail Paris

2 Index Executive Summary Recent activity Coupon calculation Most common method recommended by the CNO Less common method... 5 References... 6 Contributors... 6 Disclaimer... 7

3 Executive Summary The French Bond Association (Comité de Normalisation Obligataire - CNO) has decided to update its working paper published in January 2000 on securities indexed to EONIA. This decision followed the update of 2006 ISDA Definition book, adopted by the FBF in 2007 and renewed interest in 2009 for this type of security in the context of financial crisis. This note provides an update on recent issues and reminds the terms and conditions of the indexation and in particular the additive margin. 1

4 1. Recent activity The repo market, issuances of Negotiable Debt Securities (TCN) indexed to EONIA (1 to 3 months) and EONIA swaps constitute the main references of the market involving the EONIA index. In parallel, a medium and long term EONIA indexed note market has developed but modestly. In March 2010, the outstanding of these medium and long-term securities indexed to EONIA stood at an estimated EUR4.5bn. In 2008 and 2009, the most active issuers were the German Länders and French insurers. Most recently, in 2 nd March 2010, KfW launched a 2-year EUR200m transaction indexed to EONIA+17.5bps. TRANSACTIONS INDEXED TO EONIA (AS OF 25TH MARCH 2010 Sources: HSBC / Dealogic / Six Telekurs Driven by the European Central Banks (ECB), the EONIA rate has seen its absolute level and spread over Euribor significantly evolved and met the highest and the lowest level since the implementation of the European currency. 2

5 EURIBOR 3 MONTHS, EONIA AND EURIBOR 3 MONTHS VS EONIA SPREAD SINCE 2000 Source : Six Telekurs 2. Coupon calculation Bond indexed to EONIA coupon relies on a capitalization of daily fixed rate. The capitalization method does not call for specific comments but concerns the treatment of the additive margin. While acknowledging that a method of calculating the coupon is widespread in the market, the CNO observed that two methods coexist. The first one (presented below in 2.1) is widely used. It consists of adding to the margin the capitalized rate over the period. The second method (described in 2.2) is to capitalize the margin along the EONIA rate on the same basis. 3

6 2.1 Most common method recommended by the CNO CNO recommends this approach as it is more transparent and in terms of actuarial method is similar to the formula 2.2 (for the actuarial analysis, see CNO note published in 2000). d 0 i 1 EONIAi ni M arg in D / 360 D Where: d 0 is, for any calculation period is the number of total Target business days in the relevant calculation period ; i is a series of whole number from one to d 0, each representing the relevant Target business days, in chronological order from, and including, the first Target business day in the relevant calculation period; EONIAi for any day «i» in the relevant calculation period, is a reference rate equals to the rate in respect of that day calculated by the European Central Bank, as such rate is displayed on the Reuters EONIA page (or any other page replacing). If such rate does not appear on the Reuters EONIA page in respect of any day «i», the rate for that day will be as agreed between the parties. If the parties cannot agree, the rate for that day will be the rate displayed on the Telerate 248 page in respect of the first TARGET business day preceding the day «i». ni is the number of calendar days during the relevant calculation period for which the EONIAi rate is applicable; D is the number of total calendar days from the date of the next coupon to the beginning of the relevant interest period; Margin is the fixed rate maximising the result of the indexation on a Act/360basis 4

7 2.2 Less common method The capitalization included the EONIA rate along with the margin. This approach is much less common. d 0 i1 ( EONIAi M arg in) ni D Margin is the fixed rate maximizing the EONIA rare before capitalization 5

8 References ISDA (International Swaps and Derivatives Association) : 2006 ISDA Definitions FBF : recueil de taux Additifs techniques FBF mars 2007 CNO : EONIA bonds - janvier 2000 SICOVAM note N 3755 Contributors Redactor : Philippe LAROCHE (HSBC) Working group : Pierre MATHOULIN (FIXAGE), Ary ELBAZ (SIX TELEKURS), Patrick JACQ (BNP Paribas), Marc BILLY (SG) Other participants : Franck HEBEISEN (SG), Jean-Luc MILANO (HSBC), Euroclear France 6

9 Disclaimer Les informations contenues dans ce document, bien qu établies sur la base d informations obtenues de sources considérées par le Comité de Normalisation Obligataire (CNO) comme fiables, sont fondées sur des informations publiques qui ont été compilées et ce message ne peut ne aucune circonstance être utilisé ou considéré comme engageant la responsabilité du CNO. Les informations sur les données de marché sont fournies gratuitement par le CNO à seul titre indicatif, notamment pour des besoins d évaluation comptable. Elles sont susceptibles d évolution à tout moment, en fonction des conditions de marchés. Le CNO ne garantit en aucune manière que ces informations sont exactes ou complètes et se réserve le droit de modifier ces informations sans avoir à en informer ses contreparties. Ces informations demeurent la propriété du CNO ou de tiers auprès desquels le CNO les a lui-même obtenues. En conséquence, la contrepartie s engage à n en faire un usage que purement interne et à ne pas les reproduire, distribuer, ou publier sans l accord préalable de leurs propriétaires. Le CNO n est pas responsable des éventuelles différences de valorisation entre ses propres données et celles de tiers. Le CNO n est tenu à aucun engagement de mise à jour ou de continuité de publication des informations ainsi fournies. 7