Joanna McLafferty, Kirstine McMillan and Joseph Smart
On 7 May 2024 the SONIA rate, the UK’s risk-free reference rate, printed at exactly 5.2000% and has remained there to the end of July 2024 (the time of writing). Flatlining of SONIA is not a phenomenon we see often. Prior to this, over the past six years SONIA had been ‘flat’ for only four consecutive days, on two occasions. So how is it possible for the SONIA calculation methodology to create such a flat rate? What is happening in the underlying market? And most importantly… does the lack of volatility indicate an issue? We argue this should not cause concern since flatlining is explained by the calculation mechanics and behavioural dynamics in the market.
