SONIA is a well-established interest rate benchmark that has been published daily since 1997.

Sonia interest rate meaning. It has been endorsed by the Sterling Risk-Free Reference Rate Working Group Working Group as the preferred risk-free reference rate for Sterling Overnight Indexed Swaps OIS. Ii Statement of methodology. It is published each London business day by the Bank of England and measures the cost of overnight unsecured borrowing.

The Sterling Overnight Index Average SONIA is a transaction-based index that has been administered by the Bank of England BOE since April 2016. These FAQs which may be updated from time to time comprise information on the SONIA benchmark reforms and the derivatives industrys implementation of the relevant changes. Financial businesses and institutions use SONIA in a variety of ways.

As an overnight rate SONIA cannot be used directly as a floating rate for a multi-day interest period. Compounded Daily SONIA means in relation to an Interest Period the rate of return of a daily compound interest investment with the daily Sterling overnight reference rate as reference rate for the calculation of interest and will be calculated by the Calculation Agent as follows and the resulting percentage will be rounded if necessary to the fourth decimal place with 000005 being rounded upwards. SONIA is expected to replace GBP LIBOR across global financial markets by the end of 2021.

The definition of SONIA has two elements. I Statement of underlying interest SONIA is a measure of the rate at which interest is paid on sterling short-term wholesale funds in circumstances where credit liquidity and other risks are minimal. SONIA Sterling Over Night Indexed Average is an overnight rate set in arrears and based on actual transactions in overnight indexed swaps for unsecured transactions in the Sterling market.

For example to calculate the interest paid on transactions and sterling. SONIA may be referenced in a range of different contracts eg. SONIA is a risk-free rate meaning no bank credit risk is included.

The Sterling Overnight Interbank Average rate SONIA is the effective overnight interest rate paid by banks for unsecured transactions in British sterling these are loans that are not backed by. As such it already had a well-developed interest rate swaps market for certain tenors and had been used on an admittedly small number of borrowing transactions prior to the Working Groups recommendation. SONIA is an overnight interest rate.