Eonia starts to creep down on increase in Eonia volumes

Over the past few days, Eonia (Euro OverNight Index Average) fixing has crept down (in the 12.6-13.5bp range) in a context of increasing Eonia volumes. This supports the view that the main reason behind Eonia fixing stabilising in the -11/-13bp range in August, despite the €100bn increase in the surplus, is the reduction in Eonia volumes. 

The OIS curve remains inverted up to 1y, with 12m OIS rate trading at about -15bp. At present, the forward curve is pricing in average Eonia fixing for each reserve period to bottom at 15.5bp in June 2016, when the surplus is expected to surpass €1trn. 

"This would be consistent with our view of Eonia fixing reaching a low of -17bp (3bp higher than the depo rate) by mid-2016 (see Declining term premium, 20 August 2015). Beyond the 1y tenor, the curve is quite steep (especially at 2y+ tenors on rising term premium on the uncertainty on policy rates, liquidity conditions and other global factors", says Barclays.