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Interest (in) rates: CME’s suite soars

Despite historical seasonality trends pointing to decreased trading activity in summer months, CME’s interest rate complex has been red hot. In the past month, CME Group has experienced records in a variety of rate-related products in terms of average daily volumes, open interest, electronic trading and investor participation.

Average daily volumes (ADV) and open interest (OI) in Ultra 10-year Treasuries, Wednesday Weekly Options on Treasuries (just launched in June), electronic trading of eurodollar options are all at highs and foreign investor participation is on the rise.  (See the infographic below for more.)

In August, OI in treasury options reached a record; Wednesday Weekly Treasury Options high a record 59,630 contracts on August 29; Ultra 10-Year futures reached a record single-day volume of 464,400 contracts on Aug. 25, and record single-day open interest of 461,036 contracts on August 28; and 2-Year Note Options up 149 percent year-over-year.

The success of the Ultra 10-Year means it represents the best product launch in CME’s history and it has added to the volumes in other products rather than cannibalized them.

While the records are recent, the overall growth of the fixed income and interest rate suite at the CME started its yearly growth back in 2012. 

Agha Mizra, CME Group’s global head of interest rate products, pointed to a few reasons for the overall explosive growth. A big driver is the shift in the regulatory environment, making cleared platforms more alluring, plus the overall capital efficiencies represented by the exchange. More recently though, the Federal Reserve’s signalling of further rate hikes and an eventual unwind of its balance sheet combined with concerns over the debt ceiling added to the trading activity. While the debt ceiling issue appears to have a temporary solution, those overall concerns will remain in place after upcoming Congressional elections.

As for the Fed, the CME’s FedWatch tool indicates a coin flip probability on another rate hike in the next 12 months. Another significant piece of the puzzle is an increased presence of foreign market participants using CME’s products.

Now, there are concerns over the effect of recent hurricanes on quarterly GDP – just another reason CME expects to see continued success of its interest rate products. 

 

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