Lower Trading Sends RFR Adoption Lower
Posted by Colin Lambert. Last updated: November 20, 2023
Higher trading activity in the effective Fed Funds rate saw a decline in SOFR trading, with the subsequent decline in risk-free rate (RFR) adoption in October.
The ISDA-Clarus RFR Adoption Indicator fell to 59.9% in October 2023 compared to 60.3% the previous month. The indicator tracks how much global trading activity (as measured by DV01) is conducted in cleared over-the-counter and exchange-traded interest rate derivatives (IRD) that reference RFRs in eight major currencies.
On a traded notional basis, the percentage of RFR-linked IRD dropped to 55.0% of total IRD transacted in October 2023 compared to 58.3% the prior month, while RFR-linked IRD DV01 increased to $24.4 billion from $22.6 billion.
Total IRD DV01 rose to $40.8 billion compared to $37.4 billion in September, while RFR-linked IRD traded notional grew to $125.3 trillion from $123.7 trillion. Total IRD traded notional increased to $227.7 trillion compared to $212.1 trillion.
As noted, the percentage of trading activity in SOFR declined to 67.2% of total USD IRD DV01 in October 2023 compared to 68.3% in September, while CHF, GBP and SGD RFR-linked IRD DV01 accounted for 99.9% of total CHF IRD DV01, 99.9% of total GBP IRD DV01 and 100% of total SGD IRD DV01, respectively.
As has been the case for a very long time, JPY had the highest percentage of RFR-linked IRD DV01 executed as transactions with tenors longer than two years.