November 2021 Rates Recap

In October, amid a rising probability of an FOMC rate hike by the middle of 2022 (as high as 68% per CME FedWatch) and a spike in volatility, global participants turned to the front-end of CME Group's deeply liquid interest rate product curve to manage their risk. ​​​

• The 2Y UST CVOL Index hit a 19-month high, while 1Y and 2Y Eurodollar Mid-Curve CVOL Indexes hit multi-year highs (view latest volatility data).
• Average daily risk transfer across short-end futures contracts (ED, SR3, SR1, FF, BSB, ZT, Z3N) hit $113M DV01 per day, +61% MoM and +33% vs. the YTD average.
• Short-end contracts added 565K contracts of open interest, the largest MoM gain since May.

View FedWatch rate hike expectations

• SOFR futures ADV jumped to a record 238K contracts per day in October, +75% MoM and +325% YoY.
• Open interest surpassed 1.2M contracts, growing 40% in the last two months alone.
• Total SOFR-linked volume averaged nearly 2M contracts per day (outright SOFR + post-June 2023 Eurodollar futures and options on them).
• CME Cleared SOFR swaps volume surpassed $85B, a third consecutive monthly high.
• Term SOFR licensing has grown significantly with several hundred licenses issued and counting.

Read: The Shift From Eurodollar to SOFR is Accelerating

As an efficient tool for RV trading and basis hedging, inter-commodity spreads (ICS) between 3M SOFR and Eurodollar futures saw record trading in October.

• Complementing existing ICS instruments, beginning January 10*, CME Group will permit new reduced-tick SOFR-ED spreads (Globex code SED).
• SED spreads will reduce friction for participants moving positions from Eurodollars into SOFR futures (SR3) by offering the functionality to trade at or very close to the ISDA fallback spread for 3-month USD Libor.
• Customers will be able to trade in 0.1 bp increments around the fallback spread (e.g., -0.2, -0.1, 0, 0.1, 0.2 bps, etc.).
• SED spreads will be available for same contract month ICS for contracts beginning with Sep 2023.
• Each spread trade will simultaneously execute a buy (sell) in SR3 vs. a sell (buy) in Eurodollars at a spread equal to 26.16 + the traded price.
• Substantial credits as high as 85% already exist between Eurodollar and SOFR futures. CME Clearing is planning to enhance margin efficiencies this month in applicable parts of the forward curves, especially beyond June 30, 2023.

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