There is some progress on SOFR volume, but still very slow.
The OTC Cleared at LCH side still reports a "SOFR Third" week. With respect to the first two weeks of January, the two next have seen an increase in global volume. The increase comes mainly from an increase in EFFR volume. In relative terms, OIS-EFFR is at 47.9% up from 41.9%, IRS-LIBOR is at 31.0% down from 37.7%, and OIS-SOFR is at 15.9% up from 14.6% (plus some basis, FRA, inflation). The OIS-SOFR share is represented by the yellow curve (right axis). The order EFFR-LIBOR-SOFR has not changed since week 2. See Figure 1 for the representation of those numbers. In absolute numbers, SOFR is also up.
Figure 1: OTC SOFR volume and share of SOFR
Note that the ISDA figures reports only LIBOR and SOFR (in particular not EFFR) and is based on US regulatory figures, which is well below LCH figures. Related to the meaning of the different figures, one has to be careful when comparing them. CCP figures are "double counted" in the sens that one bilateral trade is novated to the CCP as two trades (the CCP with each of the counterparties). If all cleared trades and only them were reported in the ISDA figures, one should expect them to he half of the CCP figures. We will try to update our data source to cover more products and details in forthcoming blogs.
January was supposed to be the end of USD-LIBOR trading (with the fixing published to June 2023). From the above data, it is clearly not the case. The increase in EFFR share is interesting. The "shift in liquidity" is from LIBOR but not all to SOFR, as a large share of the shift goes to EFFR. Also LIBOR-FRA have decrease significantly. This may be an impact of the expected fallback which pushes participants to trade single period swaps instead of FRAs. The IRS-LIBOR figures may be inflated by this change of market convention. There is no indication in the available data about the maturity of the trades. On a DV01 basis the picture may be different.
On the STIR futures at CME side, there is a "shift in liquidity", but still very slow. The figures are LIBOR-3M 69.3%, SOFR-3M 19.6%, EFFR-1M 10.1%, SOFR-1M 1.0%, and BSBY-3M less than 0.1%. The open interest ED has increased by 106K since 31 Dec (from 11,237,037 to 11,343,681), so the ED volume is not all "risk reduction"
Figure 2: Daily STIR futures volume at CME
We have also added a graph with STIR Futures volume, excluding the ED futures. It shows clearly the volume increase for both SOFR and EFFR and the stagnation in BSBY.
Figure 3: Daily STIR futures volume at CME, non-ED futures.
On the SOFR futures side, it is interesting to note that option have started to trade. They have been available to trade for some time, but only since the begining of 2022 some liquidity has appeared.