Interest determination date and Interest gap: Difference between pages

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An interest determination date is a date by reference to which an amount of interest is calculated.
A mismatch in the timing at which interest-rate assets and liabilities are repriced.


There is normally a time lag between the interest determination date and the interest payment date.
A positive gap (assets repricing more quickly than liabilities) means an exposure to falling interest rates and vice versa.




:<span style="color:#4B0082">'''''Five-day lag'''''</span>
Banks and other financial institutions commonly have a 'structural' interest gap, resulting from the nature of their business and the structure of their balance sheets.


:"In SONIA referencing bonds, we have seen the Interest Determination Date set five days in advance of the interest payment date.


:This essentially creates a five-day lag between the interest period and the interest rate reference period.
This structural interest gap is usually negative.


:For example, for a bond that is due to rollover on the 15th of the month, the final interest rate applicable in that period would be finalised on the 10th of that month, enabling market participants sufficient time for calculation of cash flow and settlement...
The negative interest gap results from shorter-term liabilities funding longer term liabilities.
 
:It is possible that over time the five-day period could shorten as the market becomes more familiar with this change in convention."
 
:''The Treasurer magazine, Cash Management Edition April 2019 p28, Lloyds Bank.''




== See also ==
== See also ==
* [[Bond]]
* [[Assets]]
* [[Determination]]
* [[Liabilities]]
* [[Settlement]]
* [[SONIA]]
 
[[Category:Financial_products_and_markets]]

Revision as of 20:58, 23 July 2016

A mismatch in the timing at which interest-rate assets and liabilities are repriced.

A positive gap (assets repricing more quickly than liabilities) means an exposure to falling interest rates and vice versa.


Banks and other financial institutions commonly have a 'structural' interest gap, resulting from the nature of their business and the structure of their balance sheets.


This structural interest gap is usually negative.

The negative interest gap results from shorter-term liabilities funding longer term liabilities.


See also

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