The Riksbank, Sweden’s central bank, has conducted an analysis of the transaction-based reference rate SWESTR (Swedish krona Short Term Rate) to shed light on its design and characteristics. The study, carried out by David Petersson and Ingrid Wallin Johansson from the Market Strategy Division of the Markets Department, examines the properties of SWESTR and addresses questions raised by stakeholders.
SWESTR, administered by the Riksbank since September 2021, relies on the complete transaction dataset available to the central bank. The analysis aims to provide clarity on the composition of the dataset and how the Riksbank’s design choices influence the reference rate’s level and other attributes.
Several aspects of SWESTR’s design are explored based on feedback received by the Riksbank. For example, the study examines the impact of excluding transactions with non-financial corporations. Analysis of the 2022 data reveals only marginal differences in the average level and volatility of the reference rate, indicating that excluding such transactions would have minimal effects.
Furthermore, the study investigates the effect of raising the minimum volume threshold for individual transactions from 10 to 100 million SEK. The results demonstrate that this change would have a negligible impact on SWESTR. The data also does not support the notion that pricing discrepancies in small transactions or transactions with non-financial corporations would render them unrepresentative of the overall overnight market.
Prior to determining SWESTR as a volume-weighted average, the transaction dataset undergoes a trimming process, removing 25% of the volume. Comparisons with the European Central Bank (ECB) and the Bank of England (BOE) show that if the Riksbank were to increase the trimming level to 50%, similar to the €STR and SONIA reference rates, the average level of SWESTR would be slightly higher with a slightly lower volatility. However, this difference is considered insignificant and does not significantly impact the stability of SWESTR.
Addressing concerns regarding concentration risks in the transaction dataset, the analysis indicates that these risks are limited. Additionally, the study examines the presence of transactions without a Legal Entity Identifier (LEI), which prevents the identification of specific counterparties. The findings reveal that only a very small portion of the 2022 transaction dataset lacked this information.
SWESTR, as a transaction-based reference rate, provides insights into the unsecured overnight market in Swedish krona. The Riksbank collects data on money market transactions from reporting banks, which include banks, the Swedish National Debt Office, and financial as well as non-financial corporations. The publication of SWESTR values for financial contracts began in September 2021, following a test period, during which preliminary values were published for informational purposes. Historical estimates for SWESTR from 2016 to 2021 have also been made available by the Riksbank.