Exchange Recap
CME Group: Interest Rates Recap - July 2019
Eurodollars and Fed Funds Shine as Rate Cut Probabilities Rise Sharply
In June, amidst a dramatic repricing in USD bond markets, global participants turned to CME Group's deeply liquid Eurodollar and Fed Funds futures to both manage risk and gain insight into the likelihood of a Fed rate cut.
- Eurodollar futures ADV: 3.9M, +55% YoY
- Record Fed Funds futures ADV: 588K, +112% YoY
- Record 180 large OI holders in Fed Funds futures per the June 25 CFTC COT report (COT Tool)
- Nearly 60K unique users visited the CME FedWatch tool for insight into the market’s view on Fed policy, with total page traffic reaching a record 174K views
- CME FedWatch shows a 100% probability (based on Fed Funds futures prices) of at least one 25 bps cut at the July FOMC meeting (vs. 20% on May 28) and up to 75 bps of cuts by Jan 2020.
CME FedWatch Tool Target Rate Probabilities
| BPS Range | 100-125 | 125-150 | 150-175 | 175-200 | 200-225 | 225-250 (current) |
| 07/31/19 | 0.0% | 0.0% | 0.0% | 5.9% | 94.1% | 0.0% |
|---|---|---|---|---|---|---|
| 09/18/19 | 0.0% | 0.0% | 3.8% | 62.9% | 33.3% | 0.0% |
| 10/30/19 | 0.0% | 1.3% | 23.4% | 53.1% | 22.3% | 0.0% |
| 12/11/19 | 0.5% | 10.4% | 35.7% | 40.3% | 13.1% | 0.0% |
| 01/29/19 | 3.3% | 17.4% | 37.0% | 32.8% | 9.4% | 0.0% |
| 03/18/20 | 6.1% | 21.3% | 36.1% | 28.1% | 7.6% | 0.0% |
Probabilities as of July 8, 2019 at 8:00 a.m. CT
Deep Liquidity Enables Runaway Record in Interest Rate Options
Daily volume in Interest Rate options doubled in June to a record 4.2M contracts as the market’s risk management needs were met through CME’s highly diversified global participant pool, robust CLOB (composed of both streaming and RFQ liquidity), and a client-driven optimized market structure.
Record Eurodollar Options: 78 concurrent listings, from weekly to over 3 years, enable traders to focus on specific areas of the curve.
- Record ADV: 3.17M, +159% YoY
- Record electronic ADV: 1.1M
- Record ADV during European and Asian hours: 606K
- Record block ADV: 538K (Sign up for Block Alerts)
- Record open interest: 71M contracts on June 13
- Treasury Options: 2 expirations every week (Wed and Fri) allow traders to pinpoint event risk around economic numbers
- ADV: 1.1M, +17% YoY
- Electronic ADV: 877K
- ADV during European and Asian hours: 253K
- Active bilateral block market (Block Market Makers)
Ready for expanded UMR Rules? With the majority of Swaptions uncleared, listed options can provide significant margin, capital, and operational efficiencies to clients impacted by the expanding Uncleared Margin Rules (UMR) in September of 2019 and 2020, with inclusion based on gross notional thresholds of $750B and $8B, respectively.
SOFR Update (June 2019)
Participation and open interest reach new highs in CME SOFR Futures
- More than 10 new firms began trading in June, pushing global participation to 160+ firms since launch
- Open interest reached a new high of 168K contracts ($533B notional*)
- Aggregate large OI holders reached a new high of 99 in the June 25 CFTC report
- Daily volume averaged 28K contracts, with a record 11% executed as an Inter-Commodity Spread (ICS) vs. Eurodollars or Fed Funds
- STIR futures ICS offer an efficient tool for trading basis spreads and relative-value opportunities between U.S. money market rates
- $4B notional in OTC-cleared SOFR-LIBOR basis swaps during June
SOFR Ecosystem Developments
- Floating-rate note issuance hit a record $36B in June**
- 27 institutions have issued $148B since Fannie Mae's inaugural SOFR notes in June 2018.
Strong Growth in Eris Swap Futures Since Move to CME
Eris Swap Futures provide a liquid alternative to OTC swaps in an accessible, low-margin, quarterly futures contract that concentrates liquidity and reduces operational costs.
Since moving to CME Group in December 2018, trading has grown significantly, reaching new records in June.
- Record ADV of 15.1K, +760% from the 2018 pre-CME average
- More than $15M in DV01 traded in June
- 41.6K contracts traded on June 12
- Front month OI at 84K contracts, +500% YoY
- 97 participants active in Swap Futures (MAC & Eris)
Data as of June 28, 2019, unless otherwise specified
*Notional shown for illustrative purposes only, computed based on the value of an equivalent money market instrument with the same dollar-value-of-basis-point (DV01).
**Source: Bloomberg.
View the current version and an archive of the Rates Recap online at cmegroup.com/ratesrecap.
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