Explore the liquidity, bid/offer spreads and recent market activity of Credit futures, including insights and product performance during volatile periods.
What is the typical bid/offer spread?
The average bid/offer spreads are shown in the table below, initially represented in index points, which is how the futures are quoted. There are also a few ways to think about the liquidity, relative to adjacent markets like ETFs, CDX or Total Return Swaps.
First, we can look at the bid/offer as a % of the futures price, which makes it more comparable to instruments that trade on the basis of par (with 0.01% analogous to one cent for an instrument trading at 100.0).
Next, we can look at this in terms of basis points of yield by finding the dollar value of the bid/offer spread and dividing it by the DV01 or CR01.
|
Symbol |
Product |
Average Top of Book |
Average Bid/Offer (Index Points) |
As % of Futures Price |
In Basis Points of Yield |
|---|---|---|---|---|---|
|
HYB |
$2.5M |
0.17 |
0.025% |
0.74 |
|
|
IQB |
$6M |
1.1 |
0.033% |
0.49 |
|
|
DHB |
$7.5M |
0.08 |
0.038% |
0.57 |
We can also look at the distribution of the bid/offer observed during the most popular trading window, from 11:00 a.m. to 4:00 p.m. Eastern Time (ET) for the month of March. The Investment Grade contract was 1.0 index points wide or better for 60% of the time, while the High Yield contract was 0.2 index points or better for 78% of the time.
Who is providing liquidity in this market?
Like most of our futures, more than 95% of volume takes place on a fully anonymous electronic central limit order book (CLOB). This means clients access electronic liquidity from a variety of market makers: over a dozen firms are active, and it’s a similar group of firms that provide liquidity in Treasury futures, Equity Index futures and other products.
In addition to the CLOB, our Credit futures are eligible for block trades, which are generally negotiated OTC voice or chat. Three firms have provided liquidity on block trades, including a mix of bank dealers and non-bank liquidity providers.
What is the largest trade size you’ve seen?
Clients routinely execute trades of $10 million to 20 million notional on the screen, and in some cases we have seen trades of up to $50 million executed electronically by breaking the trade into smaller pieces, and getting passive fills. The order book replenishes quickly during the trading session given the deep bench of electronic market makers.
In blocks we have seen outright trades as large as 100 contracts ($10 million notional) and calendar spread trades as large as 280 contracts (140 contracts on each leg).
How has the product responded during recent market activity?
In the first few weeks of April, volumes accelerated and we saw multiple new end-users become active. Open interest also continued to grow over this period.
Are the futures generally trading rich or cheap?
This varies by product and by day, and now can be visualized via Credit Futures Analytics, which includes the ability to chart the net basis as a percentage of the index price.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
