The price is still wrong: banks tackle bond CSA discounting

Diverging Eonia and European repo rates spur banks to look at valuations of swaps with bond collateral

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

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