- 1 Oct 2019
- By CME Group
- Topics: Interest Rates
Last month's volatility in the U.S. repo market showcased SOFR futures as a meaningful source of liquidity and an effective risk management tool for money market participants.
Following a spike in repo overnight lending rates on Sept. 16:
- Five-day ADV jumped to 108K contracts, including a record 153K contracts ($670B notional) on Sept. 17
- Open interest grew 51% during the month to 418K contracts ($1.5T notional)
- SOFR futures averaged a record 58K contracts ($200B notional) per day for the full month of September
- Global participation surpassed 215 firms since launch
- CME cleared a record $6.3B in SOFR swaps in September
In response to elevated basis volatility between money market rates in September, 47% of SOFR volume was executed as an inter-commodity spread (ICS) vs. Fed Funds or Eurodollars with over 27.6K in ICS ADV (79% Globex, 21% Blocks).
- Oct. 10: SOFR growth drivers & hedging applications
- Nov. 1: SOFR price alignment & discounting
- Nov. 12: ICE LIBOR fallbacks for Eurodollar futures & options
As the FOMC returns to more active management of its key target rate, Fed Funds futures have experienced dramatic growth. But how well do Fed Fund futures predict Fed policy decisions?
Read our analysis exploring Fed Funds futures as a predictor of Fed policy.
With true interest rate uncertainty for the first time in more than a decade, market participants have turned to the CME FedWatch tool in record numbers.
YTD, over 275K users have visited the CME FedWatch tool in search of insight into the market’s view on Fed policy, with total page traffic exceeding 1.2M views.
CME FedWatch tool target rate probabilities (BPS)
| 100- 125 | 125- 150 | 150-175 | 175-200 | |
| 10/30/19 | 0.0% | 0.0% | 43.3% | 56.7% |
| 12/11/19 | 0.0% | 17.9% | 48.8% | 33.3% |
| 01/29/20 | 5.9% | 28.2% | 43.7% | 22.2% |
| 03/18/20 | 10.9% | 31.6% | 38.9% | 17.3% |
| 04/29/20 | 14.4% | 32.9% | 35.2% | 14.3% |
Data as of September 30, 2019, unless otherwise specified
SOFR futures notional shown for illustrative purposes only, computed based on the value of an equivalent money market instrument with the same dollar-value-of-basis-point (DV01).
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