RFR Adoption Hits New Peak

With a major Libor landmark approaching, the use of risk-free rates (RFRs) to reference interest rate derivatives has hit a new high – with the ISDA-Clarus RFR Adoption Indicator breaching 60% for the first time to hit 60.7% in April 2023. This compares to 56.6% in March.

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 rose to 53.4% of total IRD transacted in April 2023 compared to 52.3% the prior month. Within this RFR-linked IRD DV01 declined to $18.9 billion from $33.8 billion in March, while total IRD DV01 fell to $31.1 billion compared to $59.8 billion. RFR-linked IRD traded notional dropped to $93.6 trillion from $200.4 trillion in March 2023, while total IRD traded notional fell to $175.1 trillion compared to $383.6 trillion.

The percentage of trading activity in SOFR rose to 70.9% of total USD IRD DV01 in April compared to 61.5% in March 2023, while CHF and GBP RFR-linked IRD DV01 accounted for 100% of total CHF IRD DV01 and 99.6% of total GBP IRD DV01, respectively and JPY had the highest percentage of RFR-linked IRD DV01 executed as transactions with tenors longer than two years.