May 2023 Rates Recap

  • 3 May 2023
  • By CME Group

Historic conversion marks SOFR's coronation

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.

Learn more about the new standard for STIRs:

Explore complementary products:


CME Term SOFR aligns terms of use to ARRC recommendations

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.

  • Category 1 (Cash Market Financial Products): Update to the definition of what constitutes a Cash Market Financial Product. The updated definition includes business loans, securitizations that hold underlying Term SOFR assets, and legacy LIBOR cash products.
  • Category 2 (OTC Derivative Products): Update to the use of Term SOFR in OTC Derivative Products to include Term SOFR-SOFR basis swaps. Unlike regular Term SOFR swaps, use of basis swaps will not be limited to the hedging of end-user exposure to cash products that reference Term SOFR.

Have you seen the €STR order book lately?

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


TBA futures notch new milestones

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

Reminder: 10-Year (TY) delivery basket to be capped at 7 3/4 years

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.


Banking on CME Group products: How banks can hedge rising interest rates

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.


Debt ceiling battle intensifies

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 new OI record

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.


Enter the (open interest) matrix

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.


Final settlements for STIR contracts now available on cmegroup.com

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
*Source: Bloomberg

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