RFR Adoption Drops in May
Posted by Colin Lambert. Last updated: June 13, 2023
Somewhat strangely, given how the end of USD Libor is nigh, the amount of trading activity that references the replacement, risk-free rates (RFRs), actually fell back in May, bringing to an end, a stream of months where its influence increased.
The ISDA-Clarus RFR Adoption Indicator fell to 58.7% in May 2023 compared to 60.7% in April 2023. The indicator tracks how much global trading activity (as measured by DV01) is conducted in cleared OTC 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 increased to 55.3% of total IRD transacted in May 2023 compared to 53.4% the prior month. RFR-linked IRD DV01 increased to $22.7 billion from $18.9 billion, while total IRD DV0 rose to $38.7 billion compared to $31.1 billion the prior month.
RFR-linked IRD traded notional increased to $132.8 trillion from $93.6 trillion in April, while total IRD traded notional rose to $240.1 trillion compared to $175.1 trillion the prior month.
The percentage of trading activity in SOFR declined to 65.6% of total USD IRD DV01 in May 2023 compared to 70.9% the prior month, while CHF and GBP RFR-linked IRD DV01 accounted for 100% of total CHF IRD DV01 and 99.9% of total GBP IRD DV01, respectively. As is usually the case, JPY had the highest percentage of RFR-linked IRD DV01 executed as transactions with tenors longer than two years.
