Reading the tea leaves
 
October Eonia is lower than the average for the previous two maintenance periods but it’s really difficult to separate the liquidity element [expectations of 12-month LTRO] from the interest-rate element.
 
In any case, if we take the view that there’s very little left to cut from the current 1.50% main rate as nominal at most, it doesn’t really matter whether we call the expectation hope of a rate cut, or hope for the widely expected ‘non-standard measures.’
 
As for October Sonia, it’s actually quite close to BOE’s key 0.50% interest rate and the quote for later months, are lower.
 
 No one is expecting a rate cut from the BOE and again its difficult to price expectation of QE because the curve is flat – Sonia forwards are little changed from Feb 2012 to November 2012