what is ois

An Overnight Indexed Swap (OIS) is an interest rate swap over a given term, where the periodic fixed payments are tied to a given fixed rate, while the periodic floating payments are tied to a floating rate calculated from a daily compounded overnight rate over the floating coupon period. The index rate is typically the rate for overnight lending between banks, either non-secured or secured, for example the Federal funds rate or SOFR for US dollar, €STR (formerly EONIA) for Euro, or SONIA for sterling. The OIS is an important concept in the financial markets and plays a vital role in a market indicator that many economists and analysts watch every day to determine the health of the credit markets—the LIBOR OIS spread. It is also used by financial institutions to swap the interest rates they are paying without having to refinance or change the terms of the loans they have taken from other financial institutions.