The National Bank of Hungary’s new interbank rate HUFONIA (Hungarian Forint Overnight Index Average)will give a better market guidance than the existing official reference rate Bubor as it is computed from actual transactions, while Bubor (the Budapest Interbank Offered Rate) is computed from quotes, the NBH press department said when asked by Econews to compare the two instruments.
The publication of HUFONIA will effect neither Bubor or the bank’s other existing reference instrument, the Budapest interest-rate swap (BIRS), the methodology of which will remain unchanged, the press department said.
The different methodology could explain the fact that Bubor overnight fixings has been regularly over the respective HUFONIA values, as Bubor is an offered rate at which a bank is ready to lend which tends to be above the rate of actual transactions, the bank said.
The NBH started publishing HUFONIA on its website daily from September 1, at the same time publishing daily HUFONIA values and turnovers retroactively starting from 2002 until August 31, 2010 on its website on Wednesday.
HUFONIA is calculated as the weighted average rate of all unsecured forint overnight-transactions on the interbank market on a given day, except for those made with the central bank, derived from daily reports by credit institutions. The rate for any given date is published next morning at 11 a.m. on working days.
The NBH’s existing interbank rate family Bubor, also published daily, includes the overnight term among its 15 maturities, running up to the 12-month term.
As opposed to HUFONIA, Bubor (as well as BIRS) is calculated from banks’ quotes, that is it does not necessarily reflects actual obligations or transactions. Bubor is calculated from the offer quotes submitted daily by 16 banks each morning, and is computed as an arithmetical average of 8 quotes after dropping the four highest and the four lowest ones.
Both Bubor and BIRS fixings has been operated and published daily by the NBH jointly with the Hungarian Forex Association. BUBOR has been published since 1996 and BIRS since 2006.
The launch of the new reference rate HUFONIA is aimed to support the development of a Hungarian market for Overnight Indexed Swaps (OIS), the NBH said Wednesday. Jointly with the Hungarian Forex Association, the NBH plans to start publishing official OIS rates daily for eight maturities between one week and one year from the end of September.
The NBH expects that the wider use of derivative transactions based on the future development of overnight interbank interest rates would enable market participants to manage their interest rate risk more efficiently and may help defining realistic below-one-year interbank rates.