Euro swaps market faces loss of key basis hedge
New Eonia/Euribor swaps will be barred from 2020 if Eonia fails to comply with EU benchmark rules
Participants in euro swaps markets face the loss of their standard hedge for discounting risk from 2020, when new European rules on benchmarks take effect.
Euro trades typically reference Euribor, but are often discounted using Eonia, introducing basis risk that can be dynamically hedged with swaps in which one leg references each of the two rates. However, with Eonia expected not to comply with the European Union’s new Benchmarks Regulation, market participants will be unable to put on new
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