RFR Trading Is Now Back on Track – August 2023

September 19, 2023 by No comments
  • The ISDA-Clarus RFR Adoption Indicator increased to a new all time high of 66.1% last month.
  • The 5.5% increase on last month is the largest ever monthly change in RFR Adoption.
  • This is only the third time that the index has been above 60%.
  • SOFR adoption increased to 76.2% from 71.5%. 
  • €STR adoption hit a new all time high at 35.2%.
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The ISDA-Clarus RFR Adoption Indicator for August 2023 has now been published.

Showing;

  • The index has increased from 60.6% to 66.1% – a new all time high (the first new high since April!).
  • SOFR adoption increased to a new record at 76.2%.
  • 62.1% of total activity by notional was vs RFRs, a new all time record and the first time that over 60% of notional has been versus an RFR.
  • €STR saw a new record in terms of adoption (35.2%) and saw the second highest amount of monthly DV01 traded.

Highlights

Can the narrative cloud the facts? I feel like that is the case with RFR Trading. Look at headline adoption of RFRs in 2023:

Y-Axis: Percentage of DV01 traded versus an RFR
  • 66% of all Interest Rate Derivative risk is now traded versus an RFR (as of end August 2023).
  • That is up from just 51% in January 2023.
  • The adoption of RFR trading increased by a huge 5.5% last month.
  • That is the largest monthly change we have ever seen in the index.
  • That is a bigger jump in adoption than any discounting change or conversion exercise has created.
  • And it came from an already very high level, with the index only ever being over 60% twice previously.

Plus;

  • We did not see the traditional “Summer lull” in August trading conditions. More DV01 traded in August 2023 than in January 2023.
  • Last month saw the second highest amount of DV01 traded versus an RFR ever:
Y-Axis: Millions of $DV01 traded
  • And this was also seen in the amount of notional traded versus an RFR, which hit a new record at 62% (see chart below).
  • This is really broad-based evidence of the appetite for RFR trading:
Y-Axes: LHS Notional in $ millions; RHS % vs RFR by notional

This is against a backdrop on the Clarus blog, whereby we have noted:

The August 2023 ISDA-Clarus RFR Adoption Indicator feels like the first good news we’ve had for RFR Adoption in about four months! And it is even better news for the RFR market given that it wasn’t caused by a specific event or regulatory action. Let’s label it “organic” growth for want of a better term.

SOFR and ESTR Adoption

Looking at SOFR adoption last month:

Y-Axis: % of DV01 traded in USD markets versus SOFR

Showing;

  • USD SOFR adoption hit a new all time high of 76.2%.
  • This was up from 71.5% last month and marks only the third time that the index has been above 70%.
  • A reminder that US markets operate a dual-rate structure, with Fed Funds now competing against SOFR.
  • Our API also monitors any changes in Fed Funds trading.

And €STR also hit new highs:

Y-Axis: % of DV01 traded in EUR markets versus €STR

Showing;

  • EUR €STR adoption hit a new all time high of 35.2%.
  • This was 10.5% higher than last month (wow!). That rivals the changes we saw when LIBOR finally ceased!
  • Readers don’t need reminding that the €STR adoption journey has been very volatile.
  • We are now also monitoring the new €STR futures contracts.

In Summary

With the two largest markets, USD and EUR, seeing record adoption of RFRs, it obviously follows that the overall index had a strong month. We are very pleased to note how strong all of the numbers were for RFR trading in August 2023:

  • RFR Adoption increased to a new all time high of 66.1% in August 2023.
  • This was 5.5% higher than last month!
  • The data continues to be interesting, with broad-based moves higher in both USD and EUR, the two largest markets.

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