The Bank of Italy today publishes 'What lies ahead for euro money market benchmarks?', the new issue of the series 'Markets, infrastructures, payment systems'.
This paper illustrates the main steps of the interest rate benchmark reform process, which led to the identification of new overnight risk-free rates in the main currency areas. The paper focuses in particular on the latest developments in the euro money market as well as on the implications of the reform process for the development of reference rates with a maturity of more than one day (term rates).
The new benchmarks differ greatly from the traditional IBOR rates, which have historically been adopted as the reference in a large number of contracts and financial instruments. A crucial step in the reform process is the construction of term rates, which can be calculated using different approaches. It is reasonable to expect that several types of benchmark rates will coexist in the future; this could also entail a risk of market liquidity fragmentation.