Euribor

Definition of Euribor

Euribor is the short form for Euro Interbank Offered Rate which is the daily reference rate as which the panel of European banks borrow and offer to lend unsecured funds to each other. Euribor is published daily at 11 am Central European Time by the European Money Market institution.

Explanation

Europe Interbank Offered Rate is the benchmark rate at which around 20-panel banks land or borrow from each other. This panel of banks provides daily quotes on these rates rounded to three decimal figures. The lending or borrowing can vary from one week to 12 months. Hence Euribor rates also vary from one week to 12 months period. Euribor is often structured to maintain the liquidity of banks and to provide them excess cash stability at the time of need.

Euribor Technical Features

  • Each panel bank provides its rate data by 10.45 am CET on each day on its private page. This private page can only be viewed by the particular panel bank and the Thomson Reuters staff which are responsible for creating the quotes. The Panel banks can correct and update the rate from 10.45 am to 11 am.
  • At 11.00 am Thomson Reuters will do the calculation and process the Euribor rates. For the calculation process, Thomson Reuters remove the top and bottom 15% rates and then take the average rates upto three decimal places and update them.
  • At 11.00 am after the calculation, Thomson Reuters publishes the calculated Euribor rate which is made available to data vendors and subscribers.
  • If any panel bank fails to provide the data by 11 am then Thomson Reuters will calculate and update the rate without the missing data. If more than 50% of the panel banks fail to provide the data, then Thomson Reuters delays in publishing the data till 11.15 am CET.

Example of Euribor

XYZ bank issues floating rates bonds, which is linked to the Euribor rates. Assume it issues bonds at Euribor rate plus 100 bps points. That means if current Euribor rates are 2% then XYZ bond’s rates are at 3%. If after 6 months, Euribor rates changes to 3% then XYZ bank’s bond rate will be 4%.

Current Euribor Interest Rates

Below are the updated Euribor rates for different maturities:

1/22/2021 1/21/2021 1/20/2021 1/19/2021 1/18/2021
EuriBor 1 week -0.560% -0.568% -0.571% -0.564% -0.570%
Euribor 1 month -0.557% -0.561% -0.559% -0.561% -0.567%
Euribor 3 months -0.540% -0.543% -0.543% -0.548% -0.553%
Euribor 6 months -0.525% -0.527% -0.532% -0.528% -0.533%
Euribor 12 months -0.498% -0.505% -0.506% -0.502% -0.503%

Source: https://www.euribor-rates.eu/en/current-euribor-rates/

Charts of Euribor

Below is the Euribor chart for 1 month Euribor rate since the inception. As we can see that the highest Euribor rates were around 5% in 2009. Currently, the Euribor rates are at the lowest with -0.5%.

Chart: Euribor1-month rate

Why is Euribor Negative?

Negative Interest rates were introduced at the time of year 2014 by the central bank. This was done to boost the economy by forcing the banks to lend more money in the market. With negative interest rates, banks were effectively giving money to the central bank for depositing the money which doesn’t make any sense. Hence the idea was to reduce the deposit in the central bank and give more loans to people and businesses. But it is having negative effects also such as more NPA pressure for banks and low liquidation.

Euribor Forecast

Below should be the Euribor forecast which should be negative for the coming months also.

Year Mo Min Max Close Mo,% Total%
2021 Jan -0.542 -0.480 -0.511 -2.4% -2.4%
2021 Feb -0.554 -0.492 -0.523 -2.3% -4.8%
2021 Mar -0.568 -0.504 -0.536 -2.5% -7.4%
2021 Apr -0.566 -0.502 -0.534 0.4% -7.0%
2021 May -0.595 -0.527 -0.561 -5.1% -12.4%
2021 Jun -0.624 -0.554 -0.589 -5.0% -18.0%
2021 Jul -0.655 -0.581 -0.618 -4.9% -23.8%
2021 Aug -0.622 -0.552 -0.587 5.0% -17.6%
2021 Sep -0.591 -0.525 -0.558 4.9% -11.8%
2021 Oct -0.621 -0.551 -0.586 -5.0% -17.4%
2021 Nov -0.652 -0.578 -0.615 -4.9% -23.2%
2021 Dec -0.619 -0.549 -0.584 5.0% -17.0%
2022 Jan -0.588 -0.522 -0.555 5.0% -11.2%
2022 Feb -0.618 -0.548 -0.583 -5.0% -16.8%
2022 Mar -0.618 -0.548 -0.583 0.0% -16.8%
2022 Apr -0.649 -0.575 -0.612 -5.0% -22.6%
2022 May -0.682 -0.604 -0.643 -5.1% -28.9%
2022 Jun -0.648 -0.574 -0.611 5.0% -22.4%
2022 Jul -0.615 -0.545 -0.580 5.1% -16.2%
2022 Aug -0.584 -0.518 -0.551 5.0% -10.4%
2022 Sep -0.554 -0.492 -0.523 5.1% -4.8%
2022 Oct -0.545 -0.483 -0.514 1.7% -3.0%
2022 Nov -0.525 -0.465 -0.495 3.7% 0.8%
2022 Dec -0.530 -0.470 -0.500 -1.0% -0.2%
2023 Jan -0.557 -0.494 -0.525 -5.0% -5.2%

Source: https://longforecast.com/19-forecasts/euribor

Conclusion

Euribor is an important benchmark and yardstick for the banks to lend and borrow money to each other and also to the market in the eurozone. Now the new trend is the negative Euribor rate which is having a ripple effect on the economy.

Recommended Articles

This is a guide to Euribor. Here we also discuss the definition and why is euribor negative? along with features and example. you may also have a look at the following articles to learn more –

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  3. Risk Free Rate Formula
  4. Mortgage APR vs Interest Rate

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