When Libor and overnight indexed swap (OIS) rates diverged in 2008, dealers had to confront an uncomfortable truth – they were using the wrong rate to value cash-collateralised swaps. It sparked two years of chaos as market practices were overhauled. Bond-collateralised swaps, however, were largely ignored.
This may now be changing. Since 2015, the European government bond repo rate and the euro overnight index average (Eonia) – the OIS rate for euro-denominated trades – have gone in separate