Last month saw the industry complete one of the biggest milestones in the shift from LIBOR to SOFR with the conversion of 7.5 million contracts in Eurodollar open interest (OI) and $4 trillion in cleared USD LIBOR swaps to SOFR equivalents.
With these historic conversion milestones now complete, the path ahead for short-term interest rate risk management is stronger than ever, with SOFR futures and options already larger and more resilient than Eurodollars.
To align with the ARRC's recently updated Term SOFR Scope of Use Best Practice Recommendations, the following changes will be made to Category 1 and 2 CME Term SOFR licenses issued under the Information License Agreement, effective July 25, 2023.
The market-wide initiative "€STR First" is having a sizable impact on activity with a 200% expansion in top-of-book depth. Participants have also seen a narrower bid/ask spread, trading across outrights and spreads, as well as an active ICS market.
See for yourself how €STR is quickly becoming the standard for hedging overnight European money market risks. Download a CME Direct Trading Grid.
Source: CME Group
After achieving new highs in trading volume and open interest in March, TBA futures saw physical delivery jump to nearly 400 contracts ($40 million notional) in April.
These milestones come as strong liquidity and new margin offsets make the contracts even more efficient -- users of TBA futures can now enjoy margin offsets as high as 70% vs. Treasury futures, 65% vs. Eris SOFR swap futures, and 85% on certain coupon pairs (margin offsets subject to change).
Source: CME Group
Beginning with the September 2023 contract, the delivery basket for 10-Year T-Note futures (TY) will range from 6 1/2 years to 7 3/4 years (to determine a note's eligibility for contract grade, the remaining term to maturity on the first day of the contract's expiry month should be rounded down to the nearest three-month increment). Accordingly, the latest maturity in the TYU3 basket is the 1 1/4% of 8/15/31.
Banks have long been one of the most significant clients for CME Group, and their importance has grown with the financial needs of their local and global customers.
This research article takes a closer look at conditions which may warrant more hedging strategies for banks and the many ways this sector can mitigate risks across the CME Group product suite.
With a deadlock brewing between Congressional republicans and the President, Q3 2023 could be a volatile time for investors across asset classes, but particularly in the rates world. Our recent piece explores the similarities between the previous debt crisis and this year, and what traders should know about the differences between the two situations.
Eris SOFR Swap futures, which combine the cash flows and risk profile of traditional rate swaps in a listed futures contract, have seen a dramatic rise in adoption since their inclusion in portfolio margining.
Open interest jumped nearly 4x in the first two weeks of March-- reaching 101,000 contracts-- as the ability to offset positions with CME Group Cleared Swaps via portfolio margining has resulted in deeper liquidity across the Eris SOFR curve.
Curious where traders are focused across various strike prices? Our open interest heat map shows key rate products in a matrix that reveals the open interest disparity between puts and calls. See the breakdown both in the world of rates and in the commodity space.
Access the final settlement prices for the most recently expired monthly and quarterly short-term interest rate contracts here.
Data as of April 30, 2023, unless otherwise specified
View an archive of the Rates Recap online at cmegroup.com/ratesrecap.