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December 2015 Swaps Volume in 10 Charts

| FinReg

By Amir Khwaja, Clarus Financial Technology

Originally published on TABB Forum


USD Interest Rate Swaps volume traded on-SEF in December 2015 was just slightly higher than October and November volumes. But compression activity picked up. Clarus examines the numbers.


Happy New Year. Continuing with our monthly review series, let’s take a look at Interest Rate Swap volumes in December 2015.


First, the highlights:


On-SEF USD IRS Dec. 2015 volume was similar to Nov. 2015;


With Outrights and Curve trades higher, and Spreadovers and Butterflys lower.


The Fed Rate Rise on Dec. 16 had no material impact on monthly volumes.


USD Swap Curve was up 15 bps across the term structure.


USD SEF Compression volumes were back up from Nov. lows and close to Sept. volumes.


CME–LCH Basis Spreads tightened.


CME-LCH Switch trade volume was $50 billion, down from Nov., but above the monthly average.


Global Cleared Volumes in G4 Ccys were lower than in Nov. and similar to Sept.


Onto the charts, data and details.




Let’s start by looking at gross-notional volume of On-SEF USD IRS Fixed vs. Float, and only trades that are price forming – so Outrights, Spreadovers, Curve and Butterflys:


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Showing that:


December gross notional is >$1.175 trillion.


(Recall: Capped trade rules mean this is understated, as the full size of block trades is not disclosed.)


Just above Nov. and Oct., and just below Sept.


So the Fed Rate Rise on Dec. 16 happened as expected and had no impact on volumes.


Compared to Dec. 2014, gross notional is down 14%.


Recall: Nov. 2015 was 25% higher than Nov. 2014, so a case of up one month and down the next.


And splitting by package type and showing DV01 (adjusted for curves and flys):



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Showing that:


Outright trades DV01 was higher than Oct. and Nov. and similar to Sept.


Curve trades DV01 was higher than each of the prior three months.


Spreadover and Butterfly DV01 was lower than each of the prior three months


Overall $525 million of DV01 was traded in the month.


(Recall: Capped trade rules mean this is understated.)


And gross notional of non-price forming trades; Compression and Rolls:


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Showing that:


Compression activity is back up from Nov lows.


At >$208 billion in Dec., vs >$136 billion in Nov. and >$285 billion in Oct.


IMM Rolls volume in Dec. are similar to Sept. (the prior roll month).


USD IRS Prices


Let’s now take a look at what happened to USD Swap prices in the month:


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Showing a rise of 15 bps across most tenors; not much of a surprise there, as consistent with the Fed Rate Rise.


CME-LCH Basis Spreads and Volumes


CME-LCH Basis Spreads tightened during the month. Let’s look at the Tradition page from 31 Dec.:


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Showing that all tenors were lower than Nov. highs and Nov. month end. (See November Review.)


And what about CME-LCH Switch trade volumes?


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Showing that at $50 billion gross notional, they are down from the $75 billion high in Nov. but remain well above $35 billion monthly average of Sept. and prior months in 2015. Clearly, for a two-way market to trade, there are participants with different positions and opinions on the direction of the spread.


Market-share wise, Tradition just slightly ahead of ICAP this month.




Let’s also take a look at On-SEF volumes of IRS in the other three major currencies:


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Showing that for price-forming trades, EUR volumes were higher than prior months, while the overall gross notional in these three currencies of >$177b in Dec. is just 15% of the USD volume.


And then looking at SEF Compression activity:


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Shows that Dec., while down from Nov., is still well above prior months, and EUR in particular is the highest of any month in our period.


SEF Market Share


Usually we now look next at market share, but I am going to leave that to the upcoming Review of 2015.


Global Cleared Volumes


So let’s end with Global Cleared Swap Volumes for EUR, GBP, JPY & USD Swaps:


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Showing that Dec. is down from Nov. and comparable with Sept. volumes.


LCH SwapClear volume is lower in Dec. than in Nov.


CME volume in Dec. appears higher than Nov., but drilling down into this:


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Shows a large $2 trillion on Dec. 2.


Last time we saw such a large figure was Sept. 2, and that was due to TriOptima Compression – given that it is exactly 3 months later, this suggests another quarterly compression run. In fact, by looking at CME Open Interest, we can indeed see that this drops from the end of Nov. to the end of Dec. by just over $2 trillion, confirming our hypothesis.


We would then estimate the CME volume in Dec. was approximately $1.3 trillion, lower than Nov. and similar to its Oct. figure.


LCH SwapClear at $14.2 trillion in Dec, is also down from Nov and similar to its Sep figure.


JSCC at $400 billion in Dec. is similar to its Oct. figure.