Traders go all-in on interest rate derivatives in Q1

Eurex and CME Group recorded record trading volumes in listed interest rate derivatives, while LCH saw record cleared swaps volumes.

Volumes in interest rate futures and swaps reached new records during the first quarter, with expectations of a rate hike in the US, the end of quantitative easing, and regulation driving trading.

CME Group, which operates the largest interest rate derivatives exchange, recorded 421.7 million interest rate futures trades during the quarter, up 12.6% year-on-year. It also saw a record quarterly average daily volume of 9.2 million interest rate contracts per day.

Meanwhile, Frankfurt-based Eurex saw around 167 million listed interest rate derivatives traded in the first three months of the year, up 26.8%.

Traders in both the US and Europe have increased their use of listed derivatives since November last year as a way to hedge their risk to anticipated decisions over interest rates from both the US Federal Reserve and the European Central Bank.

“Listed derivatives are a safe and efficient way to manage interest rate risks. Eurex provides transparent pricing for hedging needs. This supports our trading volumes“, said Eurex CEO Thomas Book.

Regulation on central clearing and stricter collateral rules on OTC derivatives has also driven record numbers of cleared interest rate swaps.

SwapClear, the world’s largest interest rate swaps clearing house operated by LCH, recorded around 1.2 million trades with a notional value of $244 trillion, with a record $56 trillion from buy-side volumes.

LCH reported a record month in March with $105 trillion in notional cleared, as well as a record quarter for inflation swaps clearing, with $858 billion notionally cleared.

“The recent introduction of the uncleared margin rules has acted as a significant incentive for firms to direct more trades to clearing, while the upcoming clearing mandate for rates has encouraged buy-side clients to clear more of their portfolios,” said Cameron Goh, global head, product management, rates and FX derivatives, LCH.

“The execution, risk management and operational efficiencies of clearing have resulted in significant take-up of clearing among participants that are not subjected to a clearing mandate… We expect demand to continue as we roll out further products and services over the course of the year.”