Interest Rate Futures Liquidity Update – 2019

Interest Rate futures produced a fourth consecutive record year in 2019, with annual growth of 4% as investors increasingly turn to futures for liquid, capital-efficient, and off-balance-sheet interest rate exposure.

Liquidity can be defined broadly as a market participant’s ability to convert assets into cash or to enter/exit a position with ease; and is therefore proportional to indicators such as average daily trading volume, breadth of participation, book depth and open interest. The following summarizes performance in those four key liquidity measures.

Daily trading volume

In 2019, average daily volume (ADV) grew 4% compared to 2018’s record levels.

Product group 2019 ADV % chg vs 2018 % growth vs 2014
Interest Rate F&O 10,348,659 4% 48%
Eurodollar futures 2,726,479 -10% 3%
Eurodollar options 1,685,289 19% 96%
Treasury futures 4,446,546 5% 54%
Treasury options 1,077,847 8% 83%
Fed Fund futures 356,010 37% 1036%

Increase in Treasury futures activity driven by key growth initiatives:

  • Ultra 10-Year Note futures, launched in January 2016, has over 650 total participants now benefiting from a more efficient, off-balance-sheet, and precise way to trade 10-year Treasury exposure, with record ADV of 230k contracts in 2019 and open interest reaching 950k.
  • 2-Year Note tick cut in January 2019 improved cost efficiency and encouraged larger participation from end users. Driven partly by the improved in cost to trade, 2-Year Note futures ADV soared to a record 725k contracts in 2019, hitting numerous open interest records along the way.
  • Invoice Swap Spreads, using CBOT Treasury futures submitted as Exchange-for-Risk (EFR), provides customers with a flexible, off-balance-sheet alternative to spreading swaps versus cash treasuries. Renewed client interest following the Rule 538 amendment in October 2016. In 2019, Invoice Spreads (Treasury futures EFRs) increased 27% YoY to 114k contracts ($16B notional) per day, and basis trades (Treasury futures EFPs) jumped 47% YoY to 94k contracts per day. Working with DTCC on enhancing cross-margining benefits between cash/futures which may further increase basis trading.
  • Portfolio margining between futures and cleared OTC delivered a record $6B in margin savings for clients in 2019

Breadth of participation

Interest Rate futures markets have achieved broad participation by an increasingly diverse user base, as evidenced by the number of large open interest holders (LOIH) tallied in the CFTC weekly Commitment of Traders report.  Aggregate LOIH is a fair proxy for overall market participation among firms holding significant positions. During 2019, average weekly aggregate LOIHs increased by 1% to 2,138 with significant contributions from 2-Yr. Notes, Fed Funds and recently launched products such as Ultra 10-Yr. and SOFR futures.

  CFTC reportable LOIH position size in contracts ($ notional) 2019 avg weekly LOIH % chg vs. 2018 % growth vs. 2014
2-Year Note (ZT) 1000 ($200M) 356 5% 44%
5-Year Note (ZF) 2000 ($200M) 333 -4% 21%
10-Year Note (ZN) 2000 ($200M) 399 -10% 10%
Ultra 10-Year Note (TN) 2000 ($200M) 109 8% N/A (Launched in 16’)
Bond (ZB) 1500 ($150M) 182 -1% 7%
Ultra Bond (UB) 1500 ($150M) 133 6% 60%
Eurodollar (GE) 3,000 ($3B) 302 -1% -11%
Fed Funds (ZQ) 600 ($3B) 156 3% 90%
3M SOFR (SR3) 25 ($25M) 42 68% N/A (Launched in 18’)
1M SOFR (SR1) 25 ($125M) 64 147% N/A (Launched in 18’)
10-Year MAC Swap (N1U) 25 ($2.5M) 43 -10% -28%
5-Year MAC Swap (F1U) 25 ($2.5M) 33 0% -38%
10-Year Eris Swap (LIY) 25 ($2.5M) 20 N/A (Launched in 18)
5-Year Eris Swap (LIW) 25 ($2.5M) 20 N/A (Launched in 18)
Aggregate   2,138 1% 33%

Source: CFTC’s Traders in Financial Futures Report,

Central Limit Order Book

Record volume, open interest, and breadth of participation in the face of higher volatility clearly demonstrate the health and resiliency of the Treasury futures markets.  Prior research concludes that book depth and volatility are negatively correlated.  Therefore, book depth tends to decrease when market volatility is elevated.  In 2019, increasing volatility appears to have contributed to less size available in Treasury futures order books than in 2018.  Please refer to the table below for average monthly historical volatility and book depth.  Note the significant YoY increases in volatility for each Treasury futures product.

Average Central Limit Order Book Size and Volatility for Treasury Futures

  Monthly H. Volatility* Avg Book Best Bid/Offer Avg Book Best 3 Bid/Offers
2019 2018 2014 2019 2018 2014 2019 2018 2014
2-Yr Note (ZT) 1.3% 0.7% 0.6% 1,861 99,471  11,437 5,784 131,254  40,270
5-Yr Note (ZF) 3.0% 2.1% 2.5% 1,024 1,319  712 5,293 6,632  3,960
10-Yr Note (ZN) 4.4% 3.3% 3.8% 1,918 2,507  1,403 9,458 12,322  8,169
Ultra 10-Yr Note (TN) 5.7% 4.3% N/A** 236 246 N/A** 1,302 1,388 N/A**
Bond (ZB) 8.0% 6.7% 6.4% 313 377 N/A1 1,527 1,898 N/A1
Ultra Bond (UB) 11.3% 8.7% 9.1% 85 110 83 434 580 461

Outright front-month only, measured during regular trading hours (7:00 am to 4:00pm, CT)
*Monthly average for 21 days
**TN launched in January 2016
12019 vs. 2014 is not an accurate comparison as the contract’s CTD, CF and DV01 changed significantly due to the jump across the five year gap during roll activity in February 2015

On 13 Jan 2019, CME reduced the minimum price increment of 2-Yr. Note futures to 1/8th (from 1/4th). Following the tick size reduction, customers are benefiting from increased price discovery and cost-effective execution.  The bid/ask spread is consistently 1/8th during U.S. hours with 1861 contracts at the new top of book.  The average order book for the three best bid/offers was 5784 contracts.  In 2019, the average cost of crossing the bid/ask spread dropped 49% for orders as large as 1861 contracts (from $16.10 in 2018 to $8.25 in 2019) .  Please refer to the chart below for a comparison of the implied execution cost pre (2018) and post (2019) tick cut.  After the tick cut, 2-Yr. Note futures established new record volume, open interest and large open interest holders.

Open Interest

Average daily open interest (ADOI) grew 17% in 2019. The Interest Rate futures and options complex established a new record for daily open interest of 110M contracts on 13 June 2019.

Product Group 2019 ADOI % Chg vs 2018 % Growth vs 2014
Interest Rate Futures & Options 93,734,590 17% 99%
Eurodollar Futures 12,583,423 -16% 10%
Eurodollar Options 56,139,064 27% 136%
Treasury Futures 14,865,447 20% 108%
Treasury Options 7,567,477 14% 81%
Fed Fund Futures 2,034,042 3% 338%


Read our original whitepaper, The New Treasury Market Paradigm

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