EONIA, short for Euro Overnight Index Average, is an interest rate benchmark used in the European money markets. It represents the weighted average rate at which Eurozone banks lend to one another on an unsecured overnight basis. EONIA is calculated and published by the European Central Bank (ECB) and is widely regarded as a key reference rate in the Euro money markets.
EONIA is utilized as a benchmark for short-term interest rates and is important for several reasons. First, it provides an indicator of the interest rates at which banks are willing to lend to each other, reflecting the liquidity conditions in the Eurozone. Second, it serves as a reference rate for various financial products, such as floating rate bonds, derivatives, and money market funds.
The calculation of EONIA involves taking into account the rates reported by a panel of contributing banks in the interbank market. The rates are weighted based on the volume of transactions to determine the average. EONIA is published on a daily basis and is available to market participants and the general public.
EONIA is considered a reliable and transparent benchmark, contributing to the stability and efficiency of the Euro money market. However, it is important to note that EONIA is set to be phased out by the end of 2021, as part of the transition to alternative reference rates, such as the Euro Short-Term Rate (€STR), which is based on actual transactions rather than estimates.
