A sterling hedge can reference an overnight rate while calculating interest across a much longer period. SONIA provides the daily benchmark; the Bank of England’s SONIA Compounded Index supports calculations over a chosen reference interval. Reading the interval and calendar conventions is essential before comparing two quoted funding costs. Bank of England: SONIA key features and policies
Follow the evidence
Trace how the event could reach markets, then inspect a competing explanation.
Compare explanations
Switch lenses to see what each account explains—and what remains uncertain.
WFN analysis: a comparison should start with the dates, rather than the final percentages. An interval beginning before a rate change and another beginning after it use different observations. Even when both calculations are correct, they answer different funding questions. A convenient calendar label such as monthly interest may conceal that distinction. Consider an illustrative review of two contracts. One uses interest accumulated over the payment period; another uses observations shifted earlier under its stated terms. The reviewer should reproduce each contract’s own convention before evaluating the difference. Calling both SONIA-linked is insufficient to establish that the calculations should match. A realised compounded observation also has a different information content from an expectation about future interest. The accumulated result describes the specified past interval. A forecast describes a period whose daily inputs are not yet fully known. Combining them in one unlabeled chart can make a forward assumption look like a completed transaction record.
WFN analysis: a comparison should start with the dates, rather than the final percentages. An interval beginning before a rate change and another beginning after it use different observations. Even when both calculations are correct, they answer different funding questions. A convenient calendar label such as monthly interest may conceal that distinction. Consider an illustrative review of two contracts. One uses interest accumulated over the payment period; another uses observations shifted earlier under its stated terms. The reviewer should reproduce each contract’s own convention before evaluating the difference. Calling both SONIA-linked is insufficient to establish that the calculations should match. A realised compounded observation also has a different information content from an expectation about future interest. The accumulated result describes the specified past interval. A forecast describes a period whose daily inputs are not yet fully known. Combining them in one unlabeled chart can make a forward assumption look like a completed transaction record.
Record the benchmark name, observation interval, payment date, day-count rule, any observation shift and any contractual spread. Keep the data vintage used in the calculation. This practical checklist is WFN’s suggested review method; it is not a claim that the benchmark administrator imposes identical contractual terms on every market participant. For sterling analysis, place funding calculations beside the actual policy announcement and the corresponding foreign-currency leg. A well-specified hedge calculation can explain a financing cost, but it does not settle the directional exchange-rate outlook. The strongest comparison is reproducible: another reader can identify the same index dates, apply the stated convention and reach the same accumulated result.
The official benchmark and accumulated index
SONIA is based on eligible unsecured sterling deposits with one-business-day maturity. The benchmark uses a trimmed, volume-weighted mean drawn from the central half of the rate distribution. The rate for a London business day is published at 9:00 a.m. on the next London business day. Bank of England: SONIA key features and policies
The compounded index incorporates published SONIA and the calendar days for which each observation applies. The Bank publishes the index at 9:00 a.m. on the index date. Its methodology allows a compounded rate for a reference period to be derived from the starting and ending index values and the interval’s calendar-day count. Bank of England: SONIA key features and policies
Why two calculations can legitimately differ
WFN analysis: a comparison should start with the dates, rather than the final percentages. An interval beginning before a rate change and another beginning after it use different observations. Even when both calculations are correct, they answer different funding questions. A convenient calendar label such as monthly interest may conceal that distinction.
Consider an illustrative review of two contracts. One uses interest accumulated over the payment period; another uses observations shifted earlier under its stated terms. The reviewer should reproduce each contract’s own convention before evaluating the difference. Calling both SONIA-linked is insufficient to establish that the calculations should match.
A realised compounded observation also has a different information content from an expectation about future interest. The accumulated result describes the specified past interval. A forecast describes a period whose daily inputs are not yet fully known. Combining them in one unlabeled chart can make a forward assumption look like a completed transaction record.
A useful audit trail for GBP funding
Record the benchmark name, observation interval, payment date, day-count rule, any observation shift and any contractual spread. Keep the data vintage used in the calculation. This practical checklist is WFN’s suggested review method; it is not a claim that the benchmark administrator imposes identical contractual terms on every market participant.
For sterling analysis, place funding calculations beside the actual policy announcement and the corresponding foreign-currency leg. A well-specified hedge calculation can explain a financing cost, but it does not settle the directional exchange-rate outlook. The strongest comparison is reproducible: another reader can identify the same index dates, apply the stated convention and reach the same accumulated result.