All About Reference Rates

Michael Brown
Senior Research Strategist
1 Nov 2023
The replacement of LIBOR has been a significant transition for global financial markets, with post-GFC reform resulting in a range of alternative reference rates (ARRs) having been introduced. Typically, these ARRs, administered by monetary authorities of the respective currencies, are considered as rates free of bank credit risk, while also often being only overnight rates, though term structures continue to be constructed. This article explores the range of ARRs introduced, how they are calculated, and the differences between them.


The Secured Overnight Financing Rate (SOFR) replaced USD LIBOR as the benchmark USD reference rate in June 2023, being based on actual transactions in the repo market, in contrast to LIBOR being calculated by asking a panel of banks the rate at which they would be able to borrow “in reasonable market size”. SOFR is calculated as a volume-weighted median of rates applied to a range of trades within the repurchase market, and published daily by the New York Fed around 8am ET. As the SOFR rate is only an overnight rate, a term structure has been developed by the CME, calculating 1-, 3-, 6-, and 12-month SOFR rates, primarily for use in derivatives markets.


SONIA (Sterling Overnight Index Average) defines the interest rate that is paid on short-term GBP wholesale funds when risks – particularly those pertaining to credit and liquidity – are minimal. It is an unsecured rate, calculated as the volume-weighted mean rate charged on a range of eligible transactions, as defined by the Bank of England. These transactions are those which mature within one business day, are executed before 6pm UK time and settled same-day, while also being at least £25mln in value. SONIA rates are published, with a 1 day delay, on the BoE’s freely-accessible statistical database. The rate replaced LIBOR as the benchmark sterling reference rate at the start of 2022.


ESTR – the Euro Short Term Rate – reflects wholesale unsecured EUR borrowing costs for banks located within the eurozone, having replaced both EONIA and EURIBOR as the benchmark for EUR market rates. ESTR is calculated as a volume-weighted trimmed mean of overnight deposit transactions with a value in excess of €1mln. While an overnight rate, in a similar manner to SOFR, a term structure has been created, with 1-week, as well as 1-, 3-, 6- and 12-month tenors being published.


TONAR is the BoJ’s preferred JPY risk-free reference rate, having replaced the now defunct JPY LIBOR, while also being prepared to replace the Euroyen TIBOR rate, publication of which will cease at the end of 2024. The rate is calculated as a volume-weighted average of uncollateralised overnight JPY transactions with T+0 settlement, which mature on the following business day.

AU Bank Bill

Bank Bill Swap rates (BBSW) are credit-based interest rates measuring the cost for Australian banks to issue short-term paper (bonds) for tenors ranging between one and six months. This is in contrast to some other market-based rates, owing to the active bank bill market within Australia, where banks continue to frequently issue paper as a source of funding, contributing to the market’s liquid nature.

Canada Bankers Acceptances 1m

A ‘Bankers Acceptance’ refers to a short-term note issued by a borrower, usually a corporation, which when accepted by a Canadian bank, becomes an unconditional payment obligation of the bank to the note’s holder. Thus, it can be traded akin to a money market instrument. The one-month rate is calculated based on transactions from seven Canadian banks; the highest and lowest rates are omitted from the calculation, with the remaining five then averaged to calculate the published rate.


The Hong Kong Interbank Offered Rate (HIBOR) is calculated in a similar manner to many of the LIBOR rates that have since been discontinued in the aftermath of the GFC. HIBOR, published every business day at 11:15am local time, relates to the interest offered on HKD loans in the interbank market, for periods ranging from overnight, to one year. It is calculated by seeking quotations from up to 20 submitting banks, before excluding the highest and lowest three, and then averaging the remaining quotes which have been received.

Norway NIBOR

The Norwegian Interbank Offered Rate (NIBOR) refers to a range of Norwegian money market rates over different maturities. The rate reflects that on offer for unsecured money market lending, in NOK, between banks. The rate is published around 2pm local time on a daily basis, being a ‘trimmed arithmetic mean’ of submissions from reference banks, excluding the highest and lowest quotes.

Stockholm STIBOR

The Stockholm Interbank Offered Rate (STIBOR) is a benchmark rate for unsecured overnight lending in SEK between domestic banks. A term structure for the rate is also available, for tenors out to 12 months. STIBOR is calculated as a trimmed mean of all rates submitted, rounded to three decimal places, with higher and lower contributions removed, depending on the overall number of submissions received.


The Swiss Average Rate Overnight (SARON) refers to the overnight benchmark money market rate for the CHF, being based on transactions conducted and binding quotes within the Swiss repurchase (repo) market, with a term structure subsequently having been created. SARON is published every ten minutes, with three daily fixings at 12pm, 4pm, and 6pm local time. The latter fix acts as a reference for derivative products tied to the SARON rate.


Unsecured lending – a loan not requiring any collateral, being supported only by the borrower’s creditworthiness, typically possessing a higher rate, given the higher risk taken on by lenders

Secured lending – a loan secured by an asset as collateral as defined in its terms, typically less risky for a lender than an unsecured agreement

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