Regulatory Insights
NWM: Has the loan market "Realised" SONIA's potential?

In March, we highlighted that whilst the derivative and bond markets had made great progress in embracing SONIA, the loan market was yet to take the leap with a "Realised Rate" product.  We discussed the need for term rates and challenged the market to offer a daily compounded product in line with bond issuance.  


The loan market has since delivered (as detailed by the Financial Times), the global transport company National Express and NatWest signed the first ever loan with interest based on realised SONIA. The interest uses a daily compounded rate with a five day reset lag in line with all SONIA bond issuance. This builds on the first corporate bond to be based on daily compounded SONIA.


In March the Sterling RFR WG issued a consultation paper on SONIA conventions which we are expecting to have imminent feedback on. In this loan facility borrowing is available for up to 180 days reflecting additional interest period flexibility, the conventions used are:

Calculation method Daily compounding methodology (as also adopted in the Sterling FRN market)
Business day convention London, modified following
Day count Actual / 365 daily interest calculation applying compounding to SONIA component only
Rounding Rounded to the fifth decimal place with 0.000005 rounded upwards
Lag 5 business days
Margin treatment Excluded from compounding, no other adjustments made

This is a major step forward since Andrew Bailey’s speech in July 2017, NatWest and NatWest Markets have structured the first SONIA bond, the first amendment of a bond from LIBOR to SONIA and now the first ever SONIA loan, and continue to remain a market leader in SONIA derivatives.  If you would like to discuss this topic further, please get in touch.


This is Non-Independent Research, as defined by the Financial Conduct Authority. This material should be regarded as a marketing communication and may have been produced in conjunction with the NatWest Markets Plc trading desks that trade as principal in the instruments mentioned herein. All data is accurate as of the report date, unless otherwise specified.


This communication has been prepared by NatWest Markets Plc, and should be regarded as a Marketing Communication, for which the relevant competent authority is the UK Financial Conduct Authority. Please follow the link for the following information   

Where communicated in Singapore, this communication may be deemed an advertisement. This advertisement has not been reviewed by the Monetary Authority of Singapore.  

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Phil Lloyd, MD, NWM Sales

+44 207 085 1271  

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Phil Lloyd
Head of Market Structure & Regulatory Customer Engagement
+44 20 7085 1271


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