OIS stands for overnight index swap.

An overnight index swap is a bond market derivative that financial traders use for hedging and to speculate on the direction of central bank policy rates.

In Canada, OIS rates equal the expected Bank of Canada overnight rate over a specific timeframe.

For example, if the one-year OIS rate is 3.47%, the market is implying that the Bank of Canada's overnight rate will average about 3.47% over the next 12 months.

How OIS works

In an OIS trade, two parties are swapping cash flows for a specific time period. For example, if the one-year OIS rate is 0.88%, that means a trader is willing to receive a fixed rate of 0.88% and pay the Bank of Canada rate (e.g. 1.00%) for the next year and consider that a fair trade.

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