June 2022 Rates Recap

SOFR First for Options yields impressive liquidity, record volumes

CME Group's SOFR First for Options initiative, which offers enhanced liquidity and a market-wide fee waiver on all SOFR options trades during the months of June and July, has yielded impressive results in early June trading.

In the first five trading days of June:

  • Streaming and RFQ liquidity has soared.
  • The trading floor is playing a leading role in liquidity and price discovery.
  • ADV has jumped to 220K contracts (33% of Eurodollar options).
  • Open interest has risen by 568K to 4.67M contracts (12.8% of Eurodollar options).

Source: CME Direct

Did you know? SOFR vs. Eurodollar options inter-commodity spreads (ICS) can be executed as block trades provided that each leg of the spread meets the smaller of the two threshold requirements. For example, an SR3 vs. ED ICS may be executed via block provided that the size of each leg is at least 2,500 contracts, the block minimum for 3-Month SOFR options during RTH (1,250 during ETH, 625 during ATH).

Find a block market maker

SOFR futures liquidity surpasses Eurodollars

Fast on their way to becoming the world's leading short-term interest rate hedging vehicle, SOFR futures volumes are now consistently surpassing Eurodollars.

  • Over the last three weeks, SOFR futures have averaged 106% of Eurodollar volumes.
  • Open interest has reached 56% of Eurodollars.
  • SOFR packs and bundles liquidity has surpassed that of Eurodollar packs and bundles.
  • Basis spreading between the two continues to drive significant volumes, especially in SR3Z2-EDZ2, where spreads have widened to 35 bps, potentially in anticipation of year-end funding pressures.

SOFR (SR3) vs. Eurodollar (ED) spreads

As SOFR vs. BSBY futures is likely to be a leading proxy for trading credit spreads in a post-LIBOR world, it's worth noting that the SR3Z2-BSBZ2 spread has followed a similar widening path.

SOFR (SR3) vs. BSBY (BSB) spreads

Published: USD LIBOR Conversion Proposal for Cleared Swaps

CME Group has published a new proposal detailing our approach for converting USD LIBOR cleared swaps.

The contents of this proposal are for informational purposes only, and implementation is subject to regulatory review and change.

Read the proposal

CME Term SOFR reaches new milestones

Derived from over $1T in daily transactions, and endorsed by the ARRC, CME Term SOFR Reference Rates are rapidly becoming the leading benchmark of global lending markets:

  • $1.8T in loans YTD*
  • 4,700+ total licenses issued
  • 1,100+ firms from 70 different countries under license
  • $204B in OTC derivatives hedges**
  • 1-, 3-, 6-, and 12-month tenors all endorsed by the ARRC

More on Term SOFR

Research: Treasury Market Seeks More Buyers as Fed Reduces Balance Sheet

  • As the Federal Reserve reduces its balance sheet, the supply of U.S. Treasuries could allow other entities to expand their own positions.
  • On its current trajectory, the U.S. Treasury will issue $23B fewer securities per month, leaving approximately $146B in net new duration issuance before the end of 2022.

Continue reading

Attn London clients: Join us at the ISDA Benchmark Strategies forum

Join top industry practitioners and regulatory leaders in London on June 22 for in-person discussions and networking focused on key developments and remaining to-dos in the move away from USD LIBOR.

Registration is complimentary for buyside & bank participants.

Register today

Data as of June 7, 2022, unless otherwise specified

*Source: Refinitiv Deals Screener as of May 31, 2022
**Source: SDR as of May 31, 2022