March Rates Recap

Treasury futures delivering resilient liquidity

Treasury futures continue to provide market participants with resilient liquidity to manage long-dated interest rate risks in a changing market:

  • Book depth remains robust and bid/offer spreads continue to trade at or near the minimum tick despite higher volatility.
  • Large OI holders, a proxy for the number of firms holding significant positions, increased 7% YTD to 1,614 in the Feb 18 CFTC COT report.
  • Open interest (OI) grew to an all-time high of 16.7M contracts on Feb 19, with outsized growth on the long-end of the curve.
  • Average daily volume (ADV) has risen to over 6M contracts this year.
  • T-Bond futures (ZB) trading has increased significantly since the US Treasury announced plans to issue 20-year bonds: 
    • ZB OI surged 38% to a record 1.5M contracts on Feb 25.
    • As of Feb 28, ZB accounts for 8.2% of UST futures OI vs. 6.9% a year ago. 
    • ZB ADV accounts for 8.4% of UST futures volume YTD vs. 7.8% in 2019.
  • Ultra T-Bond futures (UB) OI grew to an all-time high of 1.3M contracts on Feb 25.
  • Fresh off its 4th birthday, Ultra 10-Year futures (TN) surpassed 1M contracts of OI on Feb 25.
  • 2-Year futures (ZT) continue to see positive momentum since the successful tick cut in Jan 2019 with OI +14% YoY. 

Treasury options: a liquid and capital-efficient solution for UMR

Underpinned by strong growth in weeklies (Fri +46%, Wed +108% YoY), expanded participation during non-US hours (+104% YoY), and actionable liquidity spanning three venues (CME Globex, Pit, Blocks), Treasury options have become one of the world's deepest pools of non-linear rates liquidity. This year, average daily volume exceeds 1.34M contracts, +48% YoY.

With the majority of swaptions uncleared, Treasury options can provide significant margin, capital, and operational efficiencies to clients impacted by the expanding Uncleared Margin Rules (UMR) in September of 2020 and 2021, with inclusion based on gross notional thresholds of $50B and $8B, respectively

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Traders embracing SOFR futures as additive risk management tool

In February, drawing on expanded participation and robust basis trading vs. Fed Funds and Eurodollars, SOFR futures volume jumped to a record 67K contracts/day.

Participation broadened to 400+ global participants.

Inter-commodity spreads vs. FF and ED accounted for 31% of SOFR volume.

Aggregate OI grew 35% to 540K contracts with notable growth further out the curve.

1-Month SOFR (SR1) OI expanded out to 12 months (up from nine months in Jan 2020) with outsized growth in deferred months:

  • SR1J0 +100%
  • SR1K0 +116%
  • SR1M0 +250%
  • SR1N0 +972%
  • ​SR1Q0 +2012%

3-Month SOFR (SR3) OI also saw outsized growth out the curve:

  • SR3M0 +47%
  • SR3U0 +51%
  • SR3Z0 +87%
  • SR3H1 +104%
  • SR3U1 +126%

Cleared SOFR swaps gaining steam at CME

In February, 16 participants cleared over $32B in SOFR swaps at CME, with open interest growing to $52B.

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SOFR debt issuance tops $48B in February*

Data as of February 28, 2020, unless otherwise specified.

* Source: Bloomberg