Interest Rate Futures Liquidity Metrics Reach New Highs

Outright front-month only, measured during regular trading hours (7:00 am to 4:00pm, CT)

Other liquidity metrics examined in The New Treasury Market Paradigm have continued to improve since mid-2016. Liquidity can be defined broadly as a market participant’s ability to convert assets into cash or to enter/exit a position, and is therefore proportional to indicators such as open interest, average daily trading volume, and breadth of market participation.  The following summarizes recent milestones in those 3 key liquidity measures.

Open Interest

(OI) reliably gauges outstanding positions. From 2015 to 2016, average daily open interest (ADOI) in all CME Group interest rate products grew 15%. In 2017, ADOI grew another 17%, setting new single-day records in every product group along the way (summarized in the following table and illustrated in the following four charts)

Aggregate Treasury futures OI set numerous single-day records, fueled by growth and single-day records in “Classic” 10-Year T-Note futures, 5-Year T-Note futures, 2-Year T-Note futures, “Ultra” 10-Year T-Note futures and Ultra T-Bond futures. Single-day open interest records were also set in 5-Year note options, 1-Year Eurodollar Mid-Curve options, 2-Year Eurodollar Mid-Curve options, and Weekly Treasury options.

Daily Trading Volume

Various interest rate products and product sectors hit new highs in annual average daily trading volume (ADV) in 2016, in addition to posting new single-day records. In 2017, ADV grew 9% compared to 2016’s record levels, while new single-day records were reached in Treasury futures and Fed Fund futures.

2017 Treasury futures ADV, 3.327 million contracts, signifies $371 billion notional face value per day. That’s massive, not just in absolute terms, but also in comparison to the adjacent cash government securities market.  Notional value of futures trading volume has surged to 94.2% of trading volume in cash Treasury notes and bonds, up from 80% in 2016 and 75% in 2015. Notional volume in TY and TN is now 143% of the proximate sector of the cash market (6 to 11 years).

Breadth of Participation

Interest Rate futures markets have achieved increasingly 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, a fair proxy for overall market participation among firms holding significant positions, reached a record high of 1,954 OI holders on November 21, 2017. In 2017, new highs were also reached in Treasury futures (1,406), Eurodollar futures (345), Fed Fund futures (172), 10-Year Note futures (425), 5-Year Note futures (325), 2-Year Note futures (309), Ultra Bond futures (122) and Ultra 10-Year note futures (86).

Large Open Interest Holders sourced from CFTC’s Traders in Financial Futures Report, http://www.cftc.gov/Marketreports/CommitmentsofTraders/index.htm