RFR Adoption Dips Again
Posted by Colin Lambert. Last updated: July 13, 2023
Somewhat counter-intuitively, following the end of USD Libor during the month, the rate of risk-free rate (RFR) adoption actually dropped for the second successive month according to the ISDA-Clarus RFR Adoption Indicator which fell to 58.1% in June 2023 from 58.7% in May. ISDA says the drop was driven by higher federal funds trading activity.
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 risk-free rates (RFRs) in eight major currencies.
On a traded notional basis, the percentage of RFR-linked IRD increased to 55.6% of total IRD transacted in June 2023 compared to 55.3% in May. RFR-linked IRD DV01 rose to $23.2 billion from $22.7 billion, while total IRD DV01 increased to $39.9 billion compared to $38.7 billion the prior month. RFR-linked IRD traded notional dropped to $130.9 trillion from $132.8 trillion in May, while total IRD traded notional declined to $235.3 trillion compared to $240.1 trillion.
The percentage of trading activity in SOFR decreased to 65.0% of total USD IRD DV01 in June from 65.6% the prior month, while CHF and GBP RFR-linked IRD DV01 accounted for 99.9% of total CHF IRD DV01 and 99.9% of total GBP IRD DV01, respectively. Again, JPY had the highest percentage of RFR-linked IRD DV01 executed as transactions with tenors longer than two years.