RFR Adoption Rate Drops
Posted by Colin Lambert. Last updated: October 16, 2023
The latest ISDA-Clarus RFR Adoption Indicator finds that the use of risk-free rates as a benchmark for interest rate derivatives has fallen quite sharply in September compared to the previous month.
The indicator fell to 60.3% compared to 66.1% in August (in September 2022 it was 51%), ISDA says the drop is driven by a decline in SOFR trading due to increased trading activity in the effective federal funds rate.
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 dropped to 58.3% of total IRD transacted in September 2023 compared to 62.1% in August. RFR-linked IRD DV01 fell to $22.6 billion from $24.4 billion, while total IRD DV01 increased to $37.4 billion compared to $36.9 billion. RFR-linked IRD traded notional dropped to $123.7.0 trillion from $128.0 trillion in August and total IRD traded notional grew to $212.1 trillion compared to $206.1 trillion the prior month.
The percentage of trading activity in SOFR declined to 68.3% of total USD IRD DV01 in September 2023 compared to 76.2% in August, while CHF, GBP and SGD RFR-linked IRD DV01 accounted for 100% 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 some time now, JPY had the highest percentage of RFR-linked IRD DV01 executed as transactions with tenors longer than two years.