Can someone explain to me the rationale for why the market may be moving towards OIS discounting for fully collateralized derivatives?
Answer
Most counterparty agreements specify some sort of ois rate for the interest paid/received on posted collateral. So the OIS rate is the appropriate one to use for discounting future cash flows.
Prior to 2008 the OIS/Libor spread was small and stable, so you didn't really need to worry about this, but now it's much larger, so people are taking it into account. The reason it's "big news" now is that properly switching pricing systems over to use OIS discounting is a large change, so most places are only now getting this online.
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