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Eonia Poses a Puzzler

A surge in Europe’s overnight interbank funding rate has traders bemused

No wonder European traders are puzzled. The overnight benchmark rate European banks use to lend money to one another jumped to the highest level in 20 months even though there are no signs of wider stress in money markets. “The spike underscores the shortfalls of the current methodology, in particular the tiny volume of underlying transactions, concentration and small number of reporting banks,” said Commerzbank strategists Marco Stoeckle and Michael Leister.

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