April 2023 Rates Recap

  • 4 Apr 2023
  • By CME Group

Eurodollar fallbacks clearing and operational update

On April 14, 2023, CME Group will convert all eligible Eurodollar futures and options that have a U23 underlying or later to equivalent SOFR contracts ("affected contracts").

Affected contract important reminders:

  • Customers are strongly encouraged to complete trading in the affected contracts by April 13. Otherwise, customers should significantly limit trading in affected contracts on April 14 given end of day clearing processes.  
  • For affected contracts, early exercise will be prohibited on April 14. Pit Out-Trades, Unclaimed Transfers, and Unclaimed Allocations (Give-ups, Average Priced Allocations) will be deleted from FECPlus prior to the EOD Cycle for all conversion-eligible contracts (Clearing Advisory). 
  • Exchange fees will be waived for transfers in connection with conversion (SER). 
  • Following conversion, only April, May, and June 2023 Eurodollar futures and options will remain listed. April Eurodollar futures and options will adhere to standard expirations that weekend. 
  • If you still use Eurodollar data for curve construction, valuation, or pricing purposes, it is imperative that you switch to SOFR ahead of April 14 to avoid disruptions.

Conversion resources:

  • Eurodollar Fallbacks Implementation Plan – Our complete guide to the conversion process.
  • Indicative Cash Flow Report – See how position quantities for Eurodollars would be converted to corresponding SOFR positions, as well as the cash flows for each. Note: when you enter positions, if you have long 100 ED U3 95.50 calls, you enter 100 for long and you must enter a zero for short to see results. 

SOFR liquidity update:

The vast majority of trading activity in short-term interest rates has already migrated to SOFR futures and options. 

  • SOFR futures and options ADV reached a record 8.1M contracts in March, surpassing the highest monthly volume ever recorded in Eurodollars. 
  • SOFR open interest is nearly 50M contracts, while there is approximately 7M contracts of OI remaining in Eurodollar futures and options scheduled to convert on April 14. 
  • Participants can proactively shift Eurodollar positions in SOFR via reduced-tick SED spreads, tradable in 0.1 bp increments around the ISDA fallback spread, with exchange fees waived through April 14. 
  • CME Term SOFR continues to grow as an anchor benchmark for global lending markets (now referenced in more than 6.5K loans worth $3.5 trillion*).

If you have questions about the process, please reach out to our team:
Email: ListedConversionInquiries@cmegroup.com
Chicago: (312) 207 2525
London: (44) 203 379 3198
Singapore: (65) 6593 5591

€STR First now underway

The €STR First program is underway to deepen liquidity and adoption of European Short-Term Rate futures. This market-wide initiative invests in building additional liquidity and features no exchange trading fees between now and the end of June.

TBA futures hit record open interest

With confidence and liquidity continuing to build, TBA futures open interest climbed to new high of 840 contracts in March.

Source: CME Group, data as of March 30

Enhancements now live commencing with the May 2023 contracts:

  • All positions are deliverable into TBA forwards (removing cash-settlement)
  • The delivery notice period is brought forward by two hours on the last trading day 
  • 6.5% coupons are now live

March sees historic risk management in Rates

Banking concerns and shifting perceptions about the Fed's near term rate path led traders to manage a record amount of risk in March.

  • Overall complex: New one day record of 41.9M contracts on March 13
  • Fed Funds: New ADV record of 821K contracts
  • SOFR: New ADV record of over 8.1M contracts 
  • IR options: New ADV record of 4.4M contracts

Monitor rate expectations with the CME FedWatch Tool

Market prospects for rates underwent a seismic shift last month, from more rate hikes to expectations of a rate cuts as early as this summer. Watch the CME FedWatch Tool to stay up-to-date as more data hits the market. 

The Fed's dilemma on rates

March may prove to be a turning point for the Federal Reserve. Shocks to the financial system are threatening to derail the Fed's plans to bring down inflation with more rate hikes. Chief Economist Blu Putnam discusses what participants should watch in the months ahead for clues on the Fed's near-term path. 

Volatility driving opportunities in Yield futures

Micro Treasury Yield futures are experiencing a surge in trading this year as participants are using the yield-based futures to trade the volatile rates environment.

ADV in 2023 has increased dramatically month to month, with an ADV of 7K contracts in March. 

Resurgence in 2-Year options

Traders are once again turning to 2-Year Treasury options to manage extreme volatility at the front-end of the curve. 

ADV in 2-Year options climbed to a multi-year high of nearly 25K contracts per day in March as the 2-Year CVOL Index (TUVY) surged to a new all-time high.

Source: CME Group

Data as of March 31, 2023, unless otherwise specified
*Source: Refinitiv Deals Screener

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