January 2023 Rates Recap

  • 10 Jan 2023
  • By CME Group


SOFR's triple crown: Fastest growth in ADV, OI, and LOIH in 2022

In what was arguably the most critical year yet for the LIBOR transition, our industry and its participants rose to the challenge, collaborating like never before to shift trading behavior, order flow, and open interest to SOFR.

As a result, SOFR futures and options kick off 2023 as the leading tools for hedging short-term interest rates, with expansive liquidity supporting an unparalleled range of linear and non-linear strategies across the forward curve.

2022 SOFR highlights by the numbers:









ADV (Q4)



Peak OI (Dec. 21)



Large OI Holders




ADV (Q4)



Peak OI (Dec. 15)




Volume cleared

$3.9 trillion


Notional outstanding

$2 trillion




$3 trillion


OTC derivatives hedges**

$738 billion


Firms under license



Total licenses issued



Source: CME Group

Record risk, managed

2022 saw the Fed increase its policy rate to 4.25%-4.50%, hiking seven times in eight meetings in an attempt to clamp down on inflation. The resulting risk management needs were significant, leading participants to CME Group, where deep and resilient liquidity enabled record risk transfer of 10.8 million contracts per day across Interest Rate futures and options.

Figure 1: Interest Rates ADV 2009 - 2022

Extending futures' efficiencies into new markets

Several new products were launched in 2022 to meet the market's ever-evolving hedging needs.

TBA futures: The mortgage-backed securities market is now more accessible than ever. Newly launched 30-Year UMBS TBA futures offer transparent price discovery and streaming liquidity on key coupon rates via an equal access electronic order book. In two months of trading, more than $450M notional has traded with activity across outrights, dollar rolls, and coupon swaps. [Read: The MBS Market Faces New Challenges]

€STR and RFR futures: European Overnight Index futures bring enhanced trading and risk management to three key eurozone interest rates: the Euro Short-Term Rate (€STR), the German RepoFunds Rate (RFR), and the Italian RFR. Trading in €STR futures picked up steam in December, with several days of volume in excess of 1,000 contracts, with OI to match. Trading was especially active around the Fed and ECB decisions, as well as following important economic data releases.

20-Year Bond futures: 20-Year Bond futures offer a precise hedge for managing risk at the 20-year maturity point on the U.S. Treasury curve through a targeted delivery basket of 20Y and 30Y bonds, with remaining term to maturity between 19 years 2 months and 19 years 11 months.


Interest rate outlook

Blu Putnam, Chief Economist

U.S. fixed income market participants will be keeping a close eye on three key developments in 2023.

First, when does the Fed reach its peak rate for this cycle? Based on guidance, a peak federal funds rate between 4.75% and 5.50% seems likely to be achieved at the March 22 FOMC meeting, although a delay is possible. For markets, though, it is all about the journey and not the destination. A peak rate of a quarter of a percentage point one way or the other makes little difference. Yet once the Fed acknowledges that it has reached a sufficiently restrictive rate at which it can pause and take stock, market participants are likely to breathe a sigh of relief.

Second, will the U.S. economy enter a recession in 2023? The inverted yield curve argues for recession. Yet, it is not so clear. Consumption is two-thirds of GDP, and growth in consumption depends primarily on jobs not on rates. Consumption falters when job losses are happening. That is not the case now. Job openings are abundant in hospitality and tourism while cutbacks are coming in Silicon Valley and Wall Street. On net, jobs are still growing, and the widely forecasted recession of 2023 may be very mild or not occur at all.

Finally, how fast will inflation decline? One needs to look to causes of the inflation surge and make sure they are reversed. All five major causes – pandemic GDP disruption, supply chains, fiscal stimulus, QE, and low rates – have all been reversed. Headline inflation is already headed downward, and the core may follow more slowly as 2023 progresses.

The answers to these three questions have the potential to shift sentiment in powerful ways. It is going to be an interesting year.

Where are rates headed?

The CME FedWatch Tool remains the gold standard for getting a handle on expectations for coming FOMC decisions. Use it to see what traders think is coming from the Fed at all eight of their 2023 meetings, as well as how projections have shifted over time.

Slim your margins in the New Year

Take steps to trim your margin requirements to kick off 2023. SOFR and Treasury options are the latest additions to CME Group's portfolio margining program. With these new joiners, traders are seeing billions in average daily margin savings, with margin savings as high as 98% in some cases.

In case you missed it

Effective for trade date January 23, 2023, and pending regulatory review, the block trade minimum threshold will be increased for Three-Month SOFR futures and options contracts.

Data as of January 6, 2022, unless otherwise specified
*Source: Refinitiv Deals Screener
**Source: SBSDRView from Clarus.

View an archive of the Rates Recap online at cmegroup.com/ratesrecap