Polish RFR Transition: Pricing Floating Rates Without Forward Term Benchmarks
Summary
The document considers how to price term interest-rate exposure in Poland as contracts move away from WIBOR, asking whether WIRON can support forward-looking term rates. Its answer argues that a term rate generally depends on a sufficiently active derivatives market; liquid SOFR, SONIA, and €STR markets can support such rates, while smaller currencies may lack the trading depth to produce robust derivatives-based fixings.
As an operational reference, it points to Swiss SARON products that accrue interest in arrears and describes Polish recommendations for compounded in-arrears rates with a lookback shift for corporate loans. It contrasts this with a backward-compounded rate applied at the start of the period for retail products, noting added pricing risks. The post concludes that Poland is unlikely to have forward-looking term rates and reports that the working group had replaced WIRON with POLSTR as its recommended risk-free rate. These are claims and recommendations as presented in the discussion; the post does not provide a full valuation model or independently verify subsequent market changes.
Key ideas
- Forward-looking term fixings require enough derivatives activity to support reliable market-based rates.
- In-arrears compounding is presented as an operational model for currencies without robust term benchmarks.
- The discussion cites Polish recommendations for different conventions in corporate and retail lending.
- The post reports a shift from WIRON to POLSTR and does not establish how later market developments unfolded.
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Full text
# PLN WIRON RFR transition - forward looking term rates for FTP # PLN WIRON RFR transition - forward looking term rates for FTP I was unable to find actionable information on how the RFR transition in PLN market will unfold, with respect to pricing term interest rate risk. This report does not help. https://www.mddp.pl/what-is-wiron-and-will-it-affect-transfer-pricing/ The benchmark administrator will publish compounded backward looking term rates of limited usability. https://gpwbenchmark.pl/method-determining-term-indices New contracts will not be able to reference term WIBOR and WIRON has no terms and no swap curve. How to price then? USD has a liquid term SOFR futures contracts, that is a special privileged case. Maybe GBP can offer a guide, but i am unfamiliar with their local approach, Reuters still shows LIBOR swap curves, which seem dubious, given the cessation. SONIA OIS curve is widely different from these. Thanks for any tips! ## Answer by Adam N. (score 2) https://quant.stackexchange.com/a/82001 SOFR and SONIA have active derivatives markets, which enable construction of forward-looking term rates, as Dimitri Vulis has identified in his comment. So does ESTR, even though it doesn't need them that badly, because EURIBOR survives so far. However, smaller currencies will likely never have enough derivatives trading volume to support a forward-looking term rate. This even seems to be the case with SARON where - last I checked - the working group decided that a robust derivatives-based term fixing in CHF is not feasible. So it makes sense to look at the CHF market to see how it would work operationally. For example it has SARON retail mortgage loans with interest in arrears (https://www.bcv.ch/en/home/personal-banking/products/mortgage-loans/saron-mortgage-loan.html). > Your quarterly interest payment is calculated using the daily rates recorded over a three-month observation period that ends five days before interest is billed. This means that, at the start of the interest-rate cycle, you do not know the interest rate you will pay. Also CHF floating rate bonds seem to be structured with interest in arrears (https://data.payoff.ch/termsheets/CH1304157451_en_20231110_185007.pdf). > Interest Determination Date: The second bank business day prior to the relevant Coupon Payment Date PLN market will likely evolve in a similar direction. The National Working Group recommendations (https://www.knf.gov.pl/en/news?articleId=81680&p_id=19) say to use an in arrears compounded rate with a 5BD lookback shift for corporate client loans. However, for retail clients instead they suggest a 1M backwards compounded rate, applied according to the last reset convention (ie. at the beginning of the interest period), this approach introduces several additional risks pricing-wise and is only contemplated for regulatory reasons. So no forward-looking rates are likely. Btw the working group has withdrawn WIRON as the recommended RFR, in favour of the POLSTR rate.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.