The Eonia and Euribor rates are two of the most important interest rates in Europe. They are both used as benchmarks for lending rates, and they both play a big role in the economy. But what is the difference between them? And which one is better? In this blog post, we will explore the differences between Eonia and Euribor, and we will discuss which one is better for borrowers and lenders. Stay tuned!
What is Eonia?
Eonia is a euro overnight indexed average. It is the average of all euro overnight interbank lending rates with a maturity of one day. Eonia rates are calculated by the European Central Bank (ECB) and are published daily at around noon CET.
- Eonia rates are used as a reference rate for a number of financial products, including derivatives and variable rate loans.
The ECB began publishing Eonia rates on 2 October 2005. - The main aim of publishing Eonia rates is to provide the market with a benchmark reference rate that is based on actual transactions in the euro interbank market. Eonia rates are calculated using data from a panel of around 40 banks that participating institutions must supply to the ECB on a daily basis.
- These data include the banks’ actual transactions in the euro overnight interbank market as well as their estimation of these transactions if they have not participated in the market on a particular day.
This ensures that the Eonia rate always reflects actual transaction activities in the market.
The banks supply their data to the ECB by 11:00 CET each day, and the ECB calculates and publishes the Eonia rate at around noon CET.
The ECB does not charge for the publication of Eonia rates.
What is Euribor?
Euribor is the euro interbank offered rate, which is the rate at which banks can borrow euros from each other. It is used as a reference rate for various financial products, including mortgages and loans. Euribor rates are set by the European Banking Federation and are published every day. The rates are based on submissions from a panel of leading banks in the eurozone.
Difference between Eonia and Euribor
Eonia and Euribor are both short-term interbank interest rates. They are used as reference rates for financial instruments and derivative contracts.
Euribor is the euro interbank offered rate, while Eonia stands for euro overnight index average.
- Euribor rates are compiled by the European Banking Federation and published every day at 11:00 am CET.
Eonia rates are calculated by the Eurosystem and published every day at around noon CET. - The main difference between Eonia and Euribor is that Euribor is a forward-looking rate, while Eonia is a backward-looking rate.
Euribor rates are based on transactions from the previous day, while Eonia rates are based on transactions from the same day. - Another difference between Eonia and Euribor is that Euribor rates are available for maturities of up to 12 months, while Eonia rates are only available for one day.
Euribor rates are used as a reference rate for financial products such as floating rate bonds and loans.
Eonia rates are used as a reference rate for overnight indexed swaps (OIS).
OIS are derivatives contracts where the floating leg is linked to the overnight indexed average rate, while the fix leg pays a spread over the contract’s notional amount. The main use of OIS is to hedge against changes in interest rates.
They can also be used to speculate on changes in interest rates or to hedge against currency risk.
Finally, OIS can be used as a tool for managing liquidity risk.
Conclusion
The difference between Eonia and Euribor may seem confusing at first, but it is important to understand the two rates if you are involved in Euro-denominated financial transactions. Both rates measure the average interest rate at which banks lend money to one another, but they use different time periods in their calculations. Eonia uses a 1-day window while Euribor uses a 3 month window. This means that Euribor is more representative of the current market conditions than Eonia. If you need to borrow or lend money in Euros, be sure to familiarize yourself with these two rates!
