- 9 Nov 2020
- By CME Group
- Topics: Interest Rates
Driven by an influx of new participants and increased hedging of SOFR expectations further out the term structure, CME SOFR futures liquidity deepened considerably in October.
- Resting liquidity now rivals that of Eurodollars and Fed Funds, often with thousands of lots offered at the top of the book at the minimum tick.
- Global participation since launch surpassed 495, up from 470 at the end of September.
- Open interest topped 500K contracts on Nov. 2, +37% since Oct. 2.
- Large holders of open SOFR futures positions climbed to a 2020 high of 154*.
- ADV increased to 56K contracts per day in October and has jumped to 98K in November.
- 3-Month SOFR futures (SR3) saw record ADV for the second consecutive month, with 15% of volume traded via packs and bundles.
- SR3 open interest has climbed to a record 343K contracts, led by 118% growth in reds (Dec-21, Mar-22, Jun-22, Sep-22) since Sept. 30.
- $7.2T notional outstanding efficiently transitioned to SOFR discounting and price alignment.
- Record $98.2B in SOFR swaps cleared in October, growing from $21.6B in September.
- 320 participants have cleared $327B in SOFR swaps at CME to date.
- Total election day volume exceeded 13.4M contracts, +63% vs the YTD average.
- Over 7.1M contracts traded during overnight hours, nearly 4 times the YTD average.
- Eurodollars and 10-Year Treasuries led the way.
- Classic Bond futures and options garnered significant attention relative to their YTD ADV.
Source: CME Group
- Q4 gross coupon issuance announced at $963B (vs. $864B in Q3)
- We project Q1 gross coupon issuance at $1,062B
- With a few dealers noting increased bank demand in the 7- to 10-yr sector, paired with the Treasury's desire to further establish the 20Y, we project auction increases will be largest in 7s, 10s, and 20s.
Gross Coupon Issuance ($B)
White = Projected, Yellow = Announced, Grey = Actual
Source: CME TreasuryWatch tool,
projections from CME Group Research and Product Development
- Oct. ADV: 176K contracts, +131% MoM, and the highest since Feb. '18
- Nov. ADV MTD: 341K contracts
- OI: 3M contracts, +78% MoM
Source: QuikStrike Open Interest Heatmap
With historically low interest rates driving demand for finer strike increments in STIR options, we are adding a 6.25 strike price interval to front Eurodollar and 3-Month SOFR options effective November 23*.
Read our primer to learn how this change will allow finer hedging in nearby rate movement.
Since relaunched on July 13, enhanced 3-Year futures (Z3N) have traded more than 375K contracts.
October highlights:
- Four new institutional firms began trading the contract.
- Average top of book depth grew to 236 lots.
- Bid/ask spreads regularly trade at the new 1/8 MPI.
- Strongest volume seen on days surrounding 3Y auctions.
- Yield curve spreading via Globex-listed inter-commodity spreads accounted for 17% of Z3N volume.
BrokerTec’s dealer-to-client RFQ platform, BrokerTec Quote, launched in the United States, providing a more intuitive and efficient means of trading US repo.
BrokerTec Quote offers buyside clients robust new technology to empower their existing repo relationships, developed by the market-leading execution venue for fixed income markets.
Data as of November 6, 2020, unless otherwise specified
*Source: November 3, 2020 CFTC Commitments of Traders Report
**Pending regulatory approval
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