- The ISDA-Clarus RFR Adoption Indicator was 51.3% last month.
- This is the third consecutive month that it has remained around 51%.
- SOFR adoption hit a new all-time of 58.1%.
- €STR adoption remains volatile.
- Trading activity across all markets was lower than last month.
The ISDA-Clarus RFR Adoption Indicator for October 2022 has now been published.
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- RFR adoption inched higher from last month, reaching 51.3% of the Rates market.
- SOFR adoption was the highest on record, at 58.1% – it’s always good to have a record month to talk about!
- €STR adoption remains volatile month-on-month, dropping to the lowest level since January at 18.3%.
- There were other notable aspects to the data as well:
- At 45.4% of total activity, this was the highest proportion by notional of RFR trading.
- Despite lower trading activity across the whole market, this was the 4th largest amount of RFR notional ever traded in a month.
SOFR Adoption
With less than 8 months to go before the last publication of USD LIBOR, SOFR is the main interest for our readers. I am somewhat scratching my head that adoption hasn’t accelerated by more in recent months. Next month must go over 60%, no?
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- A new record level of 58.1% of DV01 was transacted versus SOFR in USD derivatives in October 2022.
- This beat the August 2022 record, but only by 0.9%.
- The advance since Spring has been relatively pedestrian.
- What is the final “event” that will see adoption move up? Recall that USD Fed Funds will continue, so we will not see 100% SOFR trading even after the USD LIBOR demise.
Checking a chart we first published back in August this year, Futures markets saw Eurodollars account for the smallest proportion of trading on record:
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- In October 2022, Eurodollar futures (in blue on the chart) accounted for just 17% of total activity in USD Rates futures, as measured by DV01.
- This stat really highlights the speed of transition. Just 12 months ago, Eurodollars still accounted for over 70% of trading in USD Interest Rate Futures.
- SOFR futures accounted for over 50% of Futures activity for the first time (just – it was 50.27%!).
- Fed Funds have had a decent run these past 12 months – obviously helped with central banks hiking rates.
- Fed Funds Futures accounted for 32% of trading activity in Futures last month – which is higher than over the Summer.
This is quite a contrast to activity in OTC markets, where SOFR is now extremely dominant (compared to Fed Funds). Looking at CCPView data – let’s exclude LIBOR for now to make it a straight comparison:
OTC Markets suggest therefore that Fed Funds may settle at around 10% of the market. Is there any reason for Futures markets to be different?
€STR Adoption
In EUR markets, we used to have two OIS indices – EONIA and €STR. However, as a result of a) EONIA converting to €STR plus 8.5bp and b) the subsequent cessation of EONIA in January 2022, we no longer have the same dynamic as in USD markets. All EUR OIS are now traded versus €STR.
This means that we can easily look at €STR adoption per CCP by comparing activity in IRS (which are vs EURIBOR still) and OIS (which are all versus €STR).
Recall that €STR adoption as a whole is lagging behind other markets. There has been no announcement regarding a cessation of EURIBOR (that I have seen!), so there is no regulatory “deadline” for adoption. €STR adoption across the whole market is currently less than 20%:
However, in OTC markets, €STR adoption is much higher. Looking at the split at Eurex first (by notional):
Eurex has about 30-35% of volumes in €STR (for EUR activity only, excluding FRAs). For LCH SwapClear, the amount of €STR activity is even a touch higher (this time by DV01) at 30-38%:
Overall in OTC EUR markets, the adoption of €STR is looking a little more positive. With the recent launch of €STR futures at CME, and Eurex also launching 3 month €STR futures, ETD will soon see a fight for liquidity. One to stay tuned to.
In Summary
- The RFR Adoption Indicator increased to an all time high of 51.3%.
- SOFR adoption was at all time highs above 58%.
- Data suggests that Fed Funds will settle at around 10% of the USD market.
- There are signs of increasing €STR adoption in OTC markets.
- A couple of exchanges are now launching €STR futures.