CME Group to launch Bloomberg interest rate futures to support Libor transition

The interest rate futures by CME Group will be based on the Bloomberg short-term bank yield index.

US derivatives exchange CME Group has set out plans to launch a new set of interest rate futures based on Bloomberg’s short-term bank yield index (BSBY) in the third quarter.

The launch comes as the market continues to transition away from the Libor benchmark to other alternative reference rates including SONIA and SOFR.

CME said the launch was also in response to increasing demand for credit sensitive instruments in today’s market as a means to mitigating risk and adhering to the Libor transition.

“The introduction of BSBY futures and cleared swaps to the market is an important step forward in the transition away from USD LIBOR,” said Thomas Pluta, global head of linear rates trading at JP Morgan. 

“We have seen client demand for both credit sensitive rates products and SOFR rates products and having the availability and choice of a variety of indices that suit the needs of our diverse client base will help accelerate this critical transition process.”

The new futures will be available from the third quarter onwards subject to a regulatory review with over the counter clearing of BSBY swaps due to be introduced in the fourth quarter.

“Our launches of BSBY futures in Q3 – and cleared BSBY swaps in Q4 – will complement our existing short-term interest rate futures and Term SOFR index products, providing global market participants with a suite of capital-efficient risk management tools to manage their interest rate exposures going forward,” said Sean Tully, global head of financial and OTC products at CME Group.

In March earlier this year, CME Group reached a new record daily volume of 265,511 for SOFR contracts on 25 February as the market continues its migration away from the Libor benchmark.

The Libor transition has been ongoing since 2017 with several regulators setting out roadmaps for participants to follow as the benchmark is gradually taken out of circulation.

However, research by language and content specialist SDL revealed in March that more than half of banks and brokers have experienced disruption in their transition away from Libor due to the COVID-19 pandemic, finding that 54% of sell-side firms surveyed have experienced some sort of disruption in the Libor transition.