Why is Ronia higher than SoniaThat doesn't seem intuitive

It has to do with the particular technical features of the steeling cash mkt... It's a rather long and tedious subject.

Care to elaborate? It would be quite helpful to have a reasonable explanation for this.

It's just a matter of supply and demand. There is a large number of mkt participants that a) have lots of GBP cash (not collateral); b) don't have access to the various BoE facilities; and c) are happy to effectively lend their cash in the unsecured O/N mkt. All this means that SONIA, for reasons of supply/demand, is a structurally lower rate, regardless of the theory.

QuoteOriginally posted by: MartinghoulIt's just a matter of supply and demand. There is a large number of mkt participants that a) have lots of GBP cash (not collateral); b) don't have access to the various BoE facilities; and c) are happy to effectively lend their cash in the unsecured O/N mkt. All this means that SONIA, for reasons of supply/demand, is a structurally lower rate, regardless of the theory.Thanks for that, do you think the 4bps difference from Sonia to base rate will fall away once the BoE increase rates?

I agree with the supply and demand part but more because of how the way the fixing is derived and hence the lack of "interest" it generates....QuoteOriginally posted by: rongil20QuoteOriginally posted by: MartinghoulIt's just a matter of supply and demand. There is a large number of mkt participants that a) have lots of GBP cash (not collateral); b) don't have access to the various BoE facilities; and c) are happy to effectively lend their cash in the unsecured O/N mkt. All this means that SONIA, for reasons of supply/demand, is a structurally lower rate, regardless of the theory.Thanks for that, do you think the 4bps difference from Sonia to base rate will fall away once the BoE increase rates?

In order to make accurate respond one should look at calculations both indexes. General point of view is some kind of feeling. For example an old remark http://3sbg.net/technical-information-a ... rage-rate/

QuoteOriginally posted by: rongil20QuoteOriginally posted by: MartinghoulIt's just a matter of supply and demand. There is a large number of mkt participants that a) have lots of GBP cash (not collateral); b) don't have access to the various BoE facilities; and c) are happy to effectively lend their cash in the unsecured O/N mkt. All this means that SONIA, for reasons of supply/demand, is a structurally lower rate, regardless of the theory.Thanks for that, do you think the 4bps difference from Sonia to base rate will fall away once the BoE increase rates?There are some mkt participants who are speculating that this will, in fact, occur, since the Bank may also return to "reserves averaging" methodology...

Hi, sorry if this is a simple topic but how would reserve averaging reduce that spread?

QuoteOriginally posted by: rongil20Hi, sorry if this is a simple topic but how would reserve averaging reduce that spread?Well, some people are expecting that SONIA will trade tighter to base rate in a reserve-averaging regime... This seems to have been the case in the past, before reserve-averaging was scrapped.