The Sterling Overnight Index Average SONIA is administered by the Bank and reflects the average of the interest rates that banks pay to borrow sterling overnight from other financial institutions.

Sonia meaning libor. Unlike SONIA it is not necessarily based on actual transactions. 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 collateral. Unlike LIBOR which is fixed in advance for a set period eg.

NatWest completes markets first SONIA loan for National Express. SONIA is the Working Group on Sterling Risk Free Reference Rates preferred benchmark for the transition to sterling risk-free rates from Libor. Unlike LIBOR a term SONIA rate would not reflect term bank credit risk.

LIBOR is published for seven different lengths of interest period but SONIA is an overnight rate LIBOR is forward looking whereas SONIA is backward looking - the rate of SONIA cannot be determined until the end of the applicable period. Compounded SONIA tends to be relatively predictablesee figure 2. SONIA does not include a term bank credit risk component so is a better measure of the general level of interest rates than LIBOR.

LIBOR includes a credit element to reflect the cost and risk to banks of lending over a term period As SONIA is an overnight rate the risk of lending is lower The SONIA rate is therefore typically lower than LIBOR To ensure a fair conversion of existing contracts a small adjustment is needed to account for this difference. See the SONIA interest rate benchmark page. SONIA is backward-looking daily rate unlike LIBOR which is forward-looking and set for different tenors that already align to typical interest periods.

The Sterling Overnight Index Average abbreviated SONIA is the effective overnight interest rate paid by banks for unsecured transactions in the British sterling market. The Sterling Overnight Index Average SONIA is the effective overnight interest rate paid by banks for unsecured transactions in the British Sterling GBP or market. SONIA Sterling Over Night Index Average is the effective reference for overnight indexed swaps for unsecured transactions in the Sterling market.

GBP LIBOR TO BE REPLACED BY SONIA Sterling Overnight Index Average SONIA has been published since 1997 albeit the methodology for determining it was revised in 2018 and is administered by the Bank of England. It is used for overnight. There has been significant interest in the development of Term SONIA in the loan market in the hope that it will be a lower risk equivalent to LIBOR LIBOR also being a forward-looking term reference rate.