part 1 of this primer, IFLR considered what the Sterling
overnight index average was and why it was being re-developed
to take the place held by its long-standing counterpart, the
London interbank offered rate (Libor).
The second instalment of this primer takes a more in-depth
look at how a new Sonia+ rate is emerging and how it could work
What is Sonia+?
Work is currently ongoing to turn Sonia into a term rate and
make it more forward-looking like Libor – the
so-called Sonia+ rate. Setting aside the discussion as to
whether a term rate is needed for all products –
swaps, for instance, can rely on overnight rates – how
a next-generation Sonia rate will function is key. One
challenge is that, for now, Sonia has less history and
liquidity, and a smaller track record than Libor.
"Before a bank can offer a Sonia-backed product, it needs to