GBP Swaps – What’s New?

July 31, 2024 by No comments
  • DV01 traded across all GBP Rates derivatives was 76% higher in Q2 2024 versus a year earlier, hitting 3 year highs.
  • More GBP SONIA OIS notional traded at LCH SwapClear in Q2 this year than ever before.
  • And ICE saw all-time record Average Daily Volumes in SONIA STIRs.
  • SEF trading has also increased in OTC markets, with Tradeweb the main beneficiary.

It’s time to take a look at UK swap markets. I tend to do this about once a year, and the last time was June 2023:

ClarusFT: Gilty Secrets of GBP Swaps

Again, I will reference FT Alphaville for their great coverage of the UK and in particular highlighting the potential for stability in one of their recent posts:

Britain is a beacon of stability?

A good friend of mine recently won her election in Aylesbury, simultaneously becoming the first female and the first Labour MP for that constituency. This personal link has me far more inclined to agree with FT Alphaville because good things should happen when good people are MPs.

The irony of linking to a female MP’s husband to highlight her success is not lost on me. But this was the best post I found 😛

Obviously, the following analysis is in no way linked to Laura’s success. We’ll have to wait for the 2025 review to benchmark her impact on GBP swaps 😛

GBP Market Total Size

The total DV01 traded in GBP markets show that volumes have been flying recently. From CCPView:

Total DV01 in $m traded in GBP Rates derivatives (Swaps and Futures). Source: CCPView

Showing;

  • GBP derivatives markets saw more risk traded during Q2 2024 (April-June) than any other period in the last three years.
  • The amount of activity just pipped the Q4 2021 spike in volumes.
  • Compared to Q2 2023 volumes are 76% higher!

There have been previous quarters that saw more activity (Q1 of both 2020 and 2021 for example), but GBP markets look to be in good shape.

This all means that GBP Rates markets, across both Swaps and Futures, sit firmly as the third largest market, behind only EUR and USD:

Total DV01 traded in $m across Swaps and Futures by currency. Source: CCPView

Showing;

  • GBP accounted for 10.5% of all risk traded in Q2 2024 amongst these “big six” currencies.
  • That is up from 7.5% a year ago.
  • It is very likely that the general election gave impetus to GBP repositioning and risk management.

Futures and Swaps in GBP

Pulling the Average Daily Volumes in notional terms for GBP swaps and futures from CCPView shows an even more impressive increase in volumes during 2024:

Average Daily Volumes in GBP millions of Cleared Interest Rate Derivatives. Source: CCPView

Showing;

  • Average Daily Volumes in all linear Cleared Interest Rate Derivatives in GBP markets hit £930bn per day in Q2 2024.
  • This covers OTC products, mainly at LCH SwapClear. Q2 2024 saw the largest notional amount of SONIA OIS ever traded (but it was not a record in terms of total volumes across all products traded because FRAs and IRS no longer trade post LIBOR-cessation).
  • The ETD products, such as SONIA STIRs and GBP bond futures, are all cleared at ICE.
  • SONIA options volumes are excluded, keeping things simple because the risk isn’t directly comparable.
  • Notional volumes have increased by nearly 70% between Q2 2023 and Q2 2024.

As we have noted in other markets, the pattern of large spikes in notional amounts trading with DV01 only just pipping previous records suggests that a lot of activity is therefore in short-dated contracts. The chart below illustrates this;

Average Daily Volumes in GBP millions of Cleared Interest Rate Derivatives split by Tenor. Source: CCPView

Showing;

  • The volume of 3 month and 2 year tenors alone during Q1 and Q2 2024 surpassed the total volume traded across all tenors during the past three years.
  • ICE are the beneficiaries of increased activity in 3 month tenors, all being tied to the SONIA STIR contract.
  • 2Y swap tenors are at LCH.

Looking at what contracts are trading in GBP Futures;

Average Daily Volumes in GBP millions of Futures by contract. Source: CCPView

Showing;

  • GBP Futures ADVs reached almost £600bn in Q2 2024.
  • That is the highest we have ever seen. We have data stretching all the way back to 2016 and this is an all time record quarter for GBP futures – wow!
  • So much for worries over RFRs and dropping volumes in GBP futures markets. SONIA volumes are now larger than Short Sterling (GBP LIBOR) contracts ever saw.
  • This is quite some achievement.
  • (Okay, GBP is weaker versus the USD these days, but the record still holds, it just doesn’t make quite such an impressive chart 😛 )

SEF Trading in GBP Swaps

With futures markets flying, how is the “exchange light” protocol of SEF execution in GBP Swaps doing?

Notionals in GBP OIS reported to US SDRs in GBP millions. Source: SDRView

Showing;

  • A (very) gradual increase in the amount of GBP swaps that are now executed on SEF.
  • Certainly a sizeable increase in the amount of notional reported to US SDRs – I guess as GBP markets get more and more interesting to end users (hedge funds I imagine).
  • 50% of GBP notional was executed on-SEF in Q2 2024 versus 42% in Q2 2023.

Looking at which SEFs have been the beneficiaries of this trend;

DV01 in $m of GBP swaps traded per SEF

Showing;

  • A familiar story – Tradeweb is again the main beneficiary of these increased volumes in SEF-execution.
  • Again arguing that this is end-user based activity that is moving on to SEFs.
  • The above chart is in DV01 terms, with the trend even clearer in notional terms.

In Summary

  • DV01 traded across all GBP Rates derivatives was 76% higher in Q2 2024 versus a year earlier, hitting 3 year highs.
  • More GBP SONIA OIS notional traded at LCH SwapClear in Q2 than ever before.
  • And ICE saw all-time record Average Daily Volumes in SONIA STIRs.
  • SEF trading has also increased in OTC markets, with Tradeweb the main beneficiary.

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