June 2023 Rates Recap

Record hedging in U.S. Treasuries

Amid rising demand for deep and consistent liquidity when managing interest rate risks, participants turned in record numbers to Treasury futures:

  • Open interest reached 17.8M contracts on May 23, the highest level in 45+ years of trading.
  • U.S. Treasury Large OI Holders (LOIH) reached a record 1,694 in the CFTC's May 23 Traders in Financial Futures report.
  • Treasury futures notional volume as a percentage of TRACE cash volume reached a record high of 104.8%, as measured on a 52-week rolling basis. 
  • Cash-futures basis trading via Exchange for Physical (EFP) has risen to levels unseen since 2019, the record year, with ADV of nearly $11B (98K contracts) in the first five months of the year.
Figure 1: Treasury futures open interest

Source: CME Group

Amid rising demand for deep and consistent liquidity when managing interest rate risks, participants turned in record numbers to Treasury futures:

  • EFPs: Capture Treasury basis without leg risk
  • Invoice Spreads: Trade swap spreads with potential margin offsets greater than 85%*
  • Inter-Commodity Spreads: Execute curve spreads in a single click
  • Blocks: Privately negotiate larger-sized transactions in an efficient and compliant manner.

Record TBA futures May volume exceeds last four months combined

Propelled by strengthening order book liquidity, TBA futures saw record trading in May:

  • ADV jumped to 352 contracts, with 10-day rolling ADV rising to 517 to close the month 
  • Open interest breached 1,000 contracts
  • Bid-ask spreads narrowed to as low as two ticks wide in the most active coupons

Discover new TBA research and analytics:


€STR hits 200,000 contracts traded

The €STR First initiative continues to spark trading activity in the European Short-Term Rate futures market. Highlights of the program include:

  • Bid-ask spreads narrowing by 25% since the program began
  • Top-of-book quantity has increased by 400%
  • ADV > 2K contracts per day in May, OI closed the month over 3.6K contracts
  • +50 participants including large global banks, asset managers, hedge funds, and proprietary trading firms

The free trading program continues all this month, so take advantage of the no-fee environment and increased liquidity to hedge overnight risks in European markets.

Up and coming pools of liquidity:

Looking for new opportunities for your portfolio? Below are two products with notable growth in both liquidity and participation.

2-Year T-Note options:

  • An enhanced market making program is supporting strong demand for non-linear liquidity in the face of high front-end volatility 
  • ADV topped 30K contracts in May, +32x YoY
  • Open interest surged to 318K contracts on May 25, 2023, +41x YoY

3-Year T-Note futures:

  • A focus on the front-end has bond traders looking to 3Y futures as a liquid source of granular hedging, relative-value, and cost-effective execution (1/8 ticks) 
  • ADV surpassed 7K contracts in May, a six-month high
  • Open interest breached 11K contracts on May 24

Is now the time to optimize your initial margin?

This is a question posed by Clarus in a recent blog post highlighting that initial margins across the industry have reached an all-time high of $1.26T.

If you find yourself answering yes to this question, one of the best avenues to achieve optimization is by clearing USD swaps at CME Group. Margin offsets versus Interest Rate futures and options are available via Portfolio Margining – a program that has produced an average daily savings of over $7.3B for participants so far in 2023.  And with the recent neutrality of the CME/LCH basis levels since mid-April, this unique value proposition offered by CME Group is bolstered even more for traders right now. 

Want to test your portfolio? Contact our OTC team.


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