tag:blogger.com,1999:blog-14209313407455217362024-03-20T10:49:37.148+01:00muRisQ AdvisorymuRisQ Advisory offers quantitative finance advisory services. Its services focus on trainings and workshops, benchmark transitions, interest rate model development and validation, product design and risk management strategies.muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.comBlogger202125tag:blogger.com,1999:blog-1420931340745521736.post-76032852523880811032024-03-20T10:48:00.002+01:002024-03-20T10:48:50.482+01:00Is SOFR alive again?<p>The title may sound prosperous as SOFR as been the main benchmark in USD interest rate (at least in term of PV01) for more than six months.</p>
<p>SOFR has been manipulated (Note: "manipulate: to use something, often with a lot of skill", <a href="https://dictionary.cambridge.org/dictionary/english/manipulate" target="_blank">Cambridge Dictionary</a> ) by the Federal Reserve Bank by intervening in the repo market, up to USD 1,000 billions a day. If you go back to the last quarter of 2019, there were large variations in SOFR between the “normal” days and the days influenced by government actions (month end for balance sheet measurement and 15th of the month for tax payments). After the Fed interventions, the market impact of those influences disappeared; the public sector compensated one intervention by another.</p>
<p>This blog title refers to that “life” of SOFR, its reaction to external influences. In 2019 we proposed <a href="https://murisq.blogspot.com/2019/06/fed-funds-to-sofr-impact-of-seasonality.html" target="_blank">a blog on how to include that seasonal life into curve calibration</a>. After a couple of years where the SOFR daily reading (above the Fed target rate) were completely flat, there has been a little bit of action over the last months. Figure 1 represents the spread of overnight benchmarks (SOFR and EFFR) above the target rate. EFFR is completely flat at 8 bps. SOFR shows more life. The days have been divided in a certain number of buckets: 1st (business) day of the month, 2nd day of the month, 15th of the month, last day of the month, (overnight period containing the mentioned dates) and the rest.</p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0pW9rnOC0UU7mAmqpiT8zV8zPwaejNy2fY2LkC2BUvScl2x1brBpU73Sf-TPZcWxVZwuM1Ea9Znc_sKoqUepmcf6XnRmNK2xL2am2hXXI7Z0-bzPqG_jLxxCzY-FxcOpEgXYoo8U73t4hvyWd3C2ofJHAQhqbxKIqLY4EV7Y6Y8qsdgqeQQlNRHIm8Ot9/s1120/2024-03-ON-target.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1120" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0pW9rnOC0UU7mAmqpiT8zV8zPwaejNy2fY2LkC2BUvScl2x1brBpU73Sf-TPZcWxVZwuM1Ea9Znc_sKoqUepmcf6XnRmNK2xL2am2hXXI7Z0-bzPqG_jLxxCzY-FxcOpEgXYoo8U73t4hvyWd3C2ofJHAQhqbxKIqLY4EV7Y6Y8qsdgqeQQlNRHIm8Ot9/s640/2024-03-ON-target.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 1: Spread over target rate for overnight benchmarks.</b></p>
<p>
Over the last 6 months displayed in the above figure, the mean spread for the “rest” bucket is 6.42 bps. For the other periods, we measured the spread above that mean (i.e. spread of spread). The results are</p>
<table><tbody>
<tr>
<th>Day of the month</th>
<th>Spread (bps)</th>
</tr>
<tr>
<td>1st</td>
<td>2.92</td>
</tr>
<tr>
<td>2nd</td>
<td>2.75</td>
</tr>
<tr>
<td>15th</td>
<td>0.08</td>
</tr>
<tr>
<td>Last</td>
<td>2.08</td>
</tr>
</tbody></table>
<p>
There is indeed some impact around month-end/start. It is largely impacted by year end. We will see if the impact continues through the year.
</p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-63219087363200990142023-10-24T17:52:00.002+02:002023-10-25T14:31:13.209+02:00Quant Insights Conference - Seminar<p><a href="http://murisq.blogspot.com/p/management.html" target="_blank"><span style="color: #ff3f00;">Marc</span></a> will present at the <a href="https://www.qiconference.com/annual-quant-insights-conference/" target="_blank">Quant Insights Annual Conference</a> on 1 November 2023 (free online tickets available).<br /></p>
<hr />
<p>Marc's presentation will be based on his recent paper </p>
<div style="text-align: center;"><h3>
<a href="https://murisq.blogspot.com/2023/08/new-publication-bond-futures-delivery.html" target="_blank"><span style="color: #ff3f00;">Bond futures: Delivery Option with Term Structure Modelling</span></a></h3></div>
<p></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhz0QNva9mc-WNSjECP9c6nBlpJqWeosp5GS6HPpXCcusPJNwbAsZQuJRnU7sFPwkWyuwYowIyICeH3JqysWLz8CwApPLLhHsVjZj0vGY5p9Uv2WL3uF3DrpTKkOdG1HoTsdmWRApx-tAlKdiZ8VxUu83a_1wSsLFkTDW0iXFD6WAG8rtZr3NgYtF4DUHP7/s1200/Marc%20Henrard%20Quant%20Insights%20Social%20Post.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="630" data-original-width="1200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhz0QNva9mc-WNSjECP9c6nBlpJqWeosp5GS6HPpXCcusPJNwbAsZQuJRnU7sFPwkWyuwYowIyICeH3JqysWLz8CwApPLLhHsVjZj0vGY5p9Uv2WL3uF3DrpTKkOdG1HoTsdmWRApx-tAlKdiZ8VxUu83a_1wSsLFkTDW0iXFD6WAG8rtZr3NgYtF4DUHP7/s640/Marc%20Henrard%20Quant%20Insights%20Social%20Post.png" width="640" /></a></div>
<hr />
<p>Don't hesitate to <a href="mailto:info@murisq.com" target="_blank">contact us</a> if you you are interested by implemented this approach or other term structure modelling. </p><p></p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-78395262442059484042023-10-15T17:16:00.001+02:002023-10-16T10:15:46.926+02:00 LIBOR derivative volume in absence of LIBOR fixing<p>The post title may sound a little bit oxymoronic. It is not the fault of this author but the fault of the regulators and the market…</p>
<p>Derivatives are split in different categories: ETD, OTC cleared and OTC uncleared. The meaning of “LIBOR” in each of those categories is different and is also different from LIBOR fixing. This usage of the same name to describe different things is the source of the confusion in the post’s title.</p>
<p>Note that this usage of “same name; different things” description is fundamentally different to the</p>
<blockquote>
<i><a href="https://libquotes.com/henri-poincar%C3%A9/quote/lbp1i8i" target="_blank">Mathematics is the art of giving the same name to different things.</a></i>
<div style="text-align: right;"><i>Henri Poincaré</i></div>
</blockquote>
<p>Poincaré meant different things with the same properties, to which similar truths can be applied. Here we have things that should be the same in a decent world but have different properties and to which different (legal) truth apply.</p>
<p>LIBOR fixing in USD have ceased as of 30 June 2023 (not really ceased, but that will discussed later). <br /><br />The ETD derivatives went through a forced (arbitrary) conversion well ahead of the milestone date (<a href="https://www.cmegroup.com/articles/2022/eurodollar-fallbacks-implementation-plan.html" target="_blank">on 14 April 2023 for CME</a>). They have completely disappeared and are not the subject of this post.</p><p>
</p><p>The OTC uncleared derivatives are mainly traded under ISDA master agreement. We discuss only those here. The derivatives traded before January 2021 had uncertain fallback mechanisms under the ISDA definitions, or more exactly, there is a certain fallback mechanism (call 4 baks for indicative LIBOR quotes) but it is certain that the mechanism cannot be implemented in practice. Some of those derivatives have been transferred, through a protocol mechanism, to fall under the post January 2021 definitions; this case is described below.</p><p>
</p><p>The pre January 2021 do not yet have a legal issue, because LIBOR fixing still exists! This may seem in contradiction to the post title that claim an absence of LIBOR fixing; but again this is a contradiction only because the same name is used for different things (again not in the Poincaré sens). Maybe we will be in trouble with EU Digital Service Act (DSA) that may try to censure this as “disinformation” or “misinformation”!</p>
<p>The “true” LIBOR, representing the interbank lending rate, as ceased on 30 June 2023. But a <a href="https://www.fca.org.uk/news/news-stories/fca-announces-decision-synthetic-us-dollar-libor" target="_blank">“fake” LIBOR fixing has been imposed by the regulator</a>, the FCA. This LIBOR is based on an arbitrary formula replacing the market based definition in use since 1986. The regulator imposing an arbitrary definition for a critical benchmark is possible thanks to post-Brexit change of the UK BMR regulation, in particular Article 23A. That change gives the super-power to the regulator to change a benchmark definition. If tomorrow you see that the temperature in London 20 degree Celsius for the while month of the December, this is most likely not a result of the climate changes but a result of the FCA decision to change the meaning of “temperature”. This “fake” LIBOR should stop on 28 March 2024. We will only see then the true legal impact of the transition on USD LIBOR OTC derivatives (and bonds, and loans, and structure products).</p>
<p>The post January 2021 trade do not have a problem either, because ISDA forced a “non-representative” clause in the new definition. The LIBOR trade do not reference LIBOR anymore, even if LIBOR still exists. This is because the regulator that have created a new definition for LIBOR have immediately declared that what they have created is not representative of the market it is suppose to represent — while the previous version was representative. Those trades have been converted to SOFR-linked derivatives that are not really OIS (see <a href="https://murisq.blogspot.com/2020/04/fallback-gaps-and-overlap.html" target="_blank">fallback transformers</a> and subsequent posts). Unfortunately, there is no detailed public information about the volumes of those; we can not report on it.</p><p>
</p><p>We come to the next type: OTC cleared. For that category, some data is available and we describe below <a href="https://www.lch.com/services/swapclear/volumes" target="_blank">some figures from LCH</a>.</p><p>
</p><p>The existing LIBOR swaps have been converted to SOFR swaps. The conversion has been done but spliting the existing swaps in 2, one LIBOR part that continues to the last payment of the LIBOR fixed before 30 June and the SOFR part that starts after that. That conversion has been done mid-May 2023. Since that date, the outstanding LIBOR swaps have decreased from 48 trillions to 273 billions. The decrease is almost linear from the amount on the conversion date to 0 three months later. Most of the LIBOR swaps have a LIBOR-3M benchmark, hence that period. There is a little bit of 6-month tenors and 12-month tenors, so the small residual that continues to disappear.</p>
<p>Swaps linked to LIBOR continue to be cleared at LCH. From 3 July 2023 to 13 October 2023, roughly 400 billions of USD-LIBOR swaps have been cleared. Those swaps are most probably coming from USD-LIBOR swaption with physical exercise. This is a non-negligible amount for a non-existing benchmark. Those swaps are immediately converted to SOFR and do not enter into the outstanding amounts described in the previous section.</p>
<p>If we look at the total outstanding amount in USD, it decreased only by 9.3 trillions over the period, even with the 47.7 trillions of LIBOR swaps disappearing. This is somehow expected. The LIBOR swaps converted to SOFR-linked swaps are not standard OISs. So no direct offset between the converted swaps and the standard one is possible. It would be possible to eliminate them with some compression cycles, but not all participants are part of the those cycles.</p><p>
</p><p>Note that GBP, JPY an CHF LIBOR swaps (also coming from swaptions) are still cleared 22 months after the discontinuation of their respective LIBORs. The amounts (in USD equivalent) are GBP 1.330 billions, JPY 4.54 billions and CHF 0.17 billions.</p>
<p>There is also 13 trillions of outstanding basis swaps. With the disappearance of LIBOR, those basis are certainly SOFR v EFFR. The <a href="https://cdn.aws.isda.org/2023/10/13/isda-clarus-rfr-adoption-indicator-september-2023/" target="_blank">US SOFR RFR adoption indicator for September is down to 68.3% from 76.2%</a>, another sign that EFFR is still playing an important role in USD derivatives.</p>
<p>The short conclusion is that LIBOR transition is still in progress even in the absence of LIBOR!</p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-39029338566895137772023-08-19T12:57:00.002+02:002023-10-24T17:54:22.397+02:00New publication: Bond futures: Delivery Option with Term Structure Modelling<p>We are pleased to announce a new working paper titled</p>
<h2 style="text-align: center;"><span style="color: #ff3f00;">Bond futures: Delivery Option with Term Structure Modelling</span></h2>
<p>is available in our <i><span style="color: #ff3f00;">mu</span>Ris<span style="color: #ff3f00; font-size: 20px;"><sub>Q</sub></span> Advisory Model Development</i> series of research papers. The paper is available on SSRN preprint repository at <a href="http://ssrn.com/abstract=4542275" target="_blank">http://ssrn.com/abstract=4542275</a>.</p>
<h3 style="text-align: center;">Abstract </h3>
<p style="margin-left: 40px; margin-right: 40px; text-align: justify;"><i>Bond futures are characterised by a set of underlying bonds; the short party has the option to deliver at expiry any of those underlying bonds. Consequently, bond futures embed a choice option between bonds with different maturities and coupons. The delivery mechanism also incorporates conversion factors that create an implicit strike. The option is impacted by different maturities and different moneyness for each bond. It is important to take into account the full term structure of volatility with smile. A recent paper Bang and Daboussi (2022) developed such an approach for swap rate based products like CMS. In this paper we extend their approach to cover futures and apply it to the specific case of bond futures. The method allows the analysis of the impact of smile, term structure of volatility and correlations between rates on the delivery option and convexity adjustment values. All of them have an impact on the valuation and risk management of bond futures. </i></p>
<hr />
<p>The paper has been submitted for publication in an international peer-reviewed journal.
</p><hr />
<p>All the results presented in the paper are based on a proprietary implementation extending a production grade open source quantitative finance library. We would be glad to provide model development or model validation advisory services based on the theoretical and practical development described in the paper. Don't hesitate to <a href="mailto:info@murisq.com" target="_blank">contact us</a> if you require advisory services related to the interest rate modelling or benchmark transitions. </p><p></p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-86883983026253818112023-05-29T09:43:00.000+02:002023-05-29T09:43:23.043+02:00LIBOR to SOFR conversion at LCH: one week on<p>LIBOR swaps were converted to SOFR last Friday (2023-05-19 after EOD). The amount outstanding before conversion was around 48 trn, this Friday (2023-05-26) the amount outstanding was down to 15 trn. </p><p>
</p><p>Even after conversion, there is still a non-negligible amount outstanding. This is coming from the LIBOR swaps that have still a fixing between the conversion and the last LIBOR representative fixing (2023-06-30). Most of the USD LIBOR swaps are based on USD-LIBOR-3M, with one month to go it is not surprising that around one third of the LIBOR swaps (15 out of 48) still have a representative fixing.</p><p>
</p><p>On the OIS side, the notional outstanding increased from 76 to 114 trillions. For OTC products, we don’t see the same offset as in futures that we described in <a href="https://murisq.blogspot.com/2023/05/us-eurodollar-futures-usd-8-million.html" target="_blank">US - Eurodollar futures a USD 8 million rounding error</a>. There is no exact netting as it is same conventions for SOFR vanilla swaps (annual/annual money market) and the converted LIBOR swaps (semi-bond / quarterly money market). Maybe some compression run will reduce the outstanding notional.</p><p>
</p><p>The total for IRS plus OIS increased from 124 trn to 129 trn, probably due to the split of former IRS into the LIBOR part and the SOFR part.</p><p>
</p><p>Note that over the week, there were still 62 bn IRS and 48 bn FRAs traded. On the IRS side, it is not clear if it is the result of swaption exercise or maybe some BSBY swaps. For the FRA, we don’t have a direct explanation. On the FRA side, not that there is still 376 bn outstanding (unchanged with respect to last week).</p><p></p><p></p><p></p><p></p><p></p><p></p><p></p><p></p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-18053078436049257922023-05-28T15:22:00.007+02:002023-05-29T09:49:25.103+02:00New publication: Swap Rates Fallback and Term Structure Modelling<p>We are pleased to announce a new working paper titled</p>
<h2 style="text-align: center;"><span style="color: #ff3f00;">Swap Rates Fallback and Term Structure Modelling</span></h2>
<p>is available in our <i><span style="color: #ff3f00;">mu</span>Ris<span style="color: #ff3f00; font-size: 20px;"><sub>Q</sub></span> Advisory Model Development</i> series of research papers. The paper is available on SSRN preprint repository at <a href="http://ssrn.com/abstract=4461418" target="_blank">http://ssrn.com/abstract=4461418</a>.</p>
<h3 style="text-align: center;">Abstract </h3><p style="text-align: justify;">
</p><p style="margin-left: 40px; margin-right: 40px; text-align: justify;"><i>The ISDA designed fallback for cash-settled swaptions with collateral discounting generates swap rate and term structure dependent exotics. To analyse precisely the fallback impact a full term structure of rates and volatility modelling is required. A recent paper Bang and Daboussi (2022) developed such an approach for swap rate based products like CMS. In this paper we apply those techniques to the valuation and risk management of the instruments resulting from the cash-settled and physical delivery swaption fallback. In doing so, we provide some model validation for the approximations previously proposed in this context. </i></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFidvJ__2FIO91DX15bhpAz2ToPFQCiAWC-vjK-QsxjN1BLbewjPQWsbQv_aiw8xcjgYfDMCGufMUsc4SrF7xCzykK3FBBwJIQliRMMpFe4y5zXeLX1II2bQtYy3ZOFEjtksI90qKH0lZ2MieijpU6ElHJFwUuowRuhF7RvqQZzgwR762XBVPOo3rmtA/s919/table-alpha-risk.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="427" data-original-width="919" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFidvJ__2FIO91DX15bhpAz2ToPFQCiAWC-vjK-QsxjN1BLbewjPQWsbQv_aiw8xcjgYfDMCGufMUsc4SrF7xCzykK3FBBwJIQliRMMpFe4y5zXeLX1II2bQtYy3ZOFEjtksI90qKH0lZ2MieijpU6ElHJFwUuowRuhF7RvqQZzgwR762XBVPOo3rmtA/s640/table-alpha-risk.png" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<hr />
<p>All the results presented in the paper are based on a proprietary implementation extending a production grade open source quantitative finance library. We would be glad to provide model development or model validation advisory services based on the theoretical and practical development described in the paper. Don't hesitate to <a href="mailto:info@murisq.com" target="_blank">contact us</a> if you require advisory services related to the interest rate modelling or benchmark transitions. </p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-73845515120947292762023-05-23T19:19:00.002+02:002023-05-28T14:47:31.664+02:00US - Eurodollar futures a USD 8 million rounding error<p>Last week, <a href="https://murisq.blogspot.com/p/management.html" target="_blank"><span style="color: #ff3f00;">Marc</span></a> presented a workshop on the ”LIBOR transition: What could we have done better from a quantitative perspective?” at the <a href="https://ceeta.pl/" target="_blank">CEETA</a> Benchmark Congress in Warsaw.</p>
<p>Among the elements presented were the results of the fallback on euro-dollar futures at CME that were converted to SOFR futures. An interesting issue with the conversion is the number of decimals. The conversion was done using the ISDA/Bloomberg designed spread between USD-LIBOR-3M and the replacement SOFR of 26.161 bps. This is a number in basis points with three decimals. But the futures are quoted with only 0.5 basis point precision. A natural question is what happen to the extrta decimals? Simply it created a profit for those who understood it.</p>
<p>In the conversion, roughly 4 millions LIBOR futures were converted to SOFR futures, but the open interests in SOFR futures were almost unchanged. The 4 millions futures did not simply disappear, there were offsetting positions between the LIBOR and SOFR futures that had cancelling effects on the next day. The offsets were not between different market participants, but for the same participant having offsetting positions between LIBOR and SOFR futures. The spread between the two was known since 5 March 2021. The amount involved is 4,000,000 contracts with USD 1,000,000 notional each, this means USD 4,000,000,000,000 (4 trillions), not a notional resulting from an ignorant retail trader! </p>
<p> The closing price for the different futures on 14 April 2023 (the conversion date) were:</p>
<table style="width: 100%;">
<tbody><tr>
<td><b>Closing prices</b></td>
<td><b>Sep 23 </b></td>
<td><b>Dec 23 </b></td>
<td><b>Mar 24</b></td>
</tr>
<tr>
<td>ED</td>
<td>94.965</td>
<td>95.33</td>
<td>95.785</td>
</tr>
<tr>
<td>SR3</td>
<td>95.225</td>
<td>95.59</td>
<td>96.045</td>
<td><br /></td>
</tr>
<tr>
<td>Spread (bps)</td>
<td>26</td>
<td>26</td>
<td>26</td>
</tr>
</tbody></table>
<p>Take the strategy to buy SR3 at 95.225 and Sell ED at 94.965. The next day, the position is Long SR3 at 95.225 and Short SR3 at 95.22626. The total P/L is, irrespective of the price the next day: (P - 95.225) - (P - 95.22661) = 0.00161%.</p>
<p>The impact of rounding is (number of contracts x notional / basis points / quarterly / offsets * spread)</p>
<p style="text-align: center;">4,000,000 x 1,000,000 / 10,000 / 4 / 2 * 0.161 ~ 8,000,000</p>
<p>The rounding had an impact of USD 8,000,000.</p>
<p>Given that the spread is known since March 2021, one can guess that market makers have used any opportunity in the last 2 years to add ofsseting positions each time the tradable spread moved away from the 26.161 basis point. The actual arbitrage from the conversion is probbaly well above the figure indicated above.</p>
<p>Hopefully our readers were on the profitable side of the arbitrage.</p>
<hr>
<p>Don't hesitate to <a href="mailto:info@murisq.com" target="_blank">contact us</a> if you require advisory services related to the benchmark transitions. </p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-1531413136063368942023-05-23T18:41:00.000+02:002023-05-23T18:41:08.143+02:00Publication: LIBOR: le chiffre le plus important du monde disparaît<p><a href="https://murisq.blogspot.com/p/management.html" target="_blank"><span style="color: #ff3f00;">Marc</span></a> a publié un article de vulgarisation sur la disparition du LIBOR dans le magazine <a href="https://www.ecofinclub.be/" target="_blank">EcoFin</a> Mag (ECOFINMAR n 15 - mars 2023, page 32). L’article est intitulé </p>
<h2 style="text-align: center;"><span style="color: #ff3f00;">LIBOR: le chiffre le plus important du monde disparaît.</span></h2>
<p><a href="https://drive.google.com/file/d/1y1sZx72n_cpen7afd3fc2cpVUbxhtrKS/view?usp=share_link" target="_blank">Une copie de l’article peut être obtenue ici</a>.<br /></p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-28176604082594719112023-05-07T12:00:00.004+02:002023-05-23T19:15:34.337+02:00Swap Rates and Term Structure Modelling: Implementation note published<p>The implementation note related to the Swap Rates and Term Structure Modelling described in <a href="https://murisq.blogspot.com/2022/07/swap-rates-and-term-structure-modelling.html" target="_blank">one of our previous post</a> has now been published on SSRN.</p>
<p>The note is available as a <span style="color: #ff3f00;">mu</span>Ris<span style="color: #ff3f00; font-size: 20px;"><sub>Q</sub></span> Advisory Implementation Notes:</p>
<h2 style="text-align: center;"><span style="color: #ff3f00;">Swap Rates and Term Structure Modelling</span></h2>
<p>The paper is available on SSRN</p>
<p style="text-align: center;"><a href="http://https://ssrn.com/abstract=4438524"><span style="color: #ff3f00; font-size: medium;">https://ssrn.com/abstract=4438524</span></a>.</p>
<h3 style="text-align: center;">Abstract </h3><p style="text-align: justify;">
</p><p style="margin-left: 40px; margin-right: 40px; text-align: justify;"><i>WThis document contains implementation notes related to <a href="http://https://ssrn.com/abstract=4134438">Bang and Daboussi (2022)</a>. We have extended the original paper by allowing actual accrual factors (not all 1) and non-annual frequency on the fixed side. The note first describes the detailed formulas in this extended setting. In a second part some choices of the implementation and results obtained are provided.</i></p>
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<p>Don't hesitate to <a href="mailto:info@murisq.com" target="_blank">contact us</a> if you require advisory services related to interest rate modelling. </p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-33228874316116596982023-04-29T20:30:00.001+02:002023-04-29T20:30:27.696+02:00CEETA Benchmark Congress<p><a href="http://murisq.blogspot.com/p/management.html" target="_blank"><span style="color: #ff3f00;">Marc</span></a> will present at the Benchmark Congress organised by CEETA in Warsaw 15-16 May. Most of the congress will be held in Polish and focus on the WIBOR transistion.</p>
<hr />
<p>Marc's presentation will be divided in two parts </p>
<div style="text-align: center;"><h3>
<span style="color: #ff3f00;">SOFR - USD LIBOR transition: where do we stand?</span></h3></div>
<p>and</p>
<div style="text-align: center;"><h3>
<span style="color: #ff3f00;">LIBOR transition: what could we have done better from a quantitative perspective.</span></h3></div>
<hr />
<p>Don't hesitate to <a href="mailto:info@murisq.com" target="_blank">contact us</a> if you require advisory related to the benchmark transitions. </p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-71216166525777532852023-03-25T12:51:00.004+01:002023-03-25T12:51:58.907+01:00CCP Basis - Large LCH-EUREX basis - not unexpected<p>On Thursday and Friday, Marc was presenting a workshop on “<a href="https://murisq.blogspot.com/2023/02/workshop-multi-curve-warsaw-23-24-march.html" target="_blank">multi-curve and collateral framework and IBOR transition</a>”.
</p><p>Among the slides presented was this one:</p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjD9qo0YpqXck2jMsTFA3dzo82ZJu7JveablnFt6uRbmv5P-Jp0bAkEL8x2wg_6vHde2aIPc-7lZVHgJahEcr1e_ysZrwRWDu0kYTMFXfAbCB1Hd6IZmK02xVI_s6ZrTE62AjmEoxPDhWhLhYjzkboph2NY5pSlXOFkM3ZCJxaTOtFUYWPZlCss8TKsAA/s907/mva-workshop.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="510" data-original-width="907" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjD9qo0YpqXck2jMsTFA3dzo82ZJu7JveablnFt6uRbmv5P-Jp0bAkEL8x2wg_6vHde2aIPc-7lZVHgJahEcr1e_ysZrwRWDu0kYTMFXfAbCB1Hd6IZmK02xVI_s6ZrTE62AjmEoxPDhWhLhYjzkboph2NY5pSlXOFkM3ZCJxaTOtFUYWPZlCss8TKsAA/s640/mva-workshop.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p>This is a back-of-envelop computation of IM funding cost (Margin Value Adjustment - MLA) to take advantage of the CCP basis. This computation leads to a 1.5 bps annualized at each CCP, i.e. 3.0 bps total. The slide was presented with a graph of the recent LCH-EUREX basis in EUR done a couple of days before and showing the peak at 4 bps for the 10 year.</p>
<p>The same day that the slide was presented, the following article was published in Risk:
</p><h3 style="text-align: center;"><a href="https://www.risk.net/derivatives/7956324/eurex-lch-basis-hits-new-highs-amid-rates-vol" target="_blank"><span style="color: #ff3f00;">Eurex-LCH basis hits new highs amid rates vol</span></a> </h3>
<p>This shows that the basis, which looks like an arbitrage, is very difficult to monetize, that 4 bps may not be a strong anomaly but just a feature of the market and that constraints on the market by regulators may have unintended, but not unexpected consequences.</p>
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<p>Don't hesitate to <a href="mailto:info@murisq.com">contact us</a> if you are interested by independent advise related to market infrastructures, initial margins and interest rate markets.</p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-63143206248026438502023-03-21T11:18:00.003+01:002023-03-21T11:27:35.922+01:00SOFR First, the next (but not yet final) step!<p>The USD interest rate derivative market has reached the next "<i>SOFR First</i>"! </p><p>We need to qualify that statement. There are many ways to measure what "<i>SOFR First</i>" means. The first "<i>SOFR First</i>" initiative date from July 2021 and consisting of the regulators saying "please use SOFR". Then there were plenty of informal SOFR First</p>
<ul style="text-align: left;"><li>the first day/week where there were more notional on SOFR OTC transactions than LIBOR transactions,</li>
<li>when SOFR transactions represented more than 50% of the IR OTC derivative market, </li><li>the last date/week when notional on LIBOR transactions was higher than SOFR transactions</li>
<li>the first day/week where there were more notional on SOFR ETD/futures transactions than LIBOR transactions,</li>
<li>etc.</li>
</ul>
<p>Now it seems we have reached the next "<i>SOFR First</i>" moment (see Figure 1):</p>
<h3 style="text-align: center;"><b><span style="color: #ff3f00;">the outstanding notional on SOFR-linked derivatives at LCH is higher than the outstanding notional on LIBOR-linked derivatives</span></b></h3>
<p>Note that we have not reached yet the moment when the outstanding notional on SOFR-linked derivatives at LCH is more than 50% outstanding notional on LIBOR-linked derivatives. We have not reached yet the moment when SOFR is more than 50% of derivative every week. For the moment, EFFR is still above SOFR on a regular basis (see Figure 2).<br /></p><p>That moment will come, but it is not clear yet if it will come before the LIBOR transactions are mandatory converted to SOFR.</p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBj4brNngC1y6JVLiO7YKaYe-vSc3vjJwFcAKG0tFggNvAaz03gr2KmRB1gpCvR06c4je64puTjDcM9waeyuSKDpGL_1LpHpT5Qu6X07qFD1mCnuRRu0r6YkylneJX_qL8Lb1qUru0XUpUy0tEMwaerWLq5XomtJHeVKqY8OG2-4_DkYexH9xgyrUrxA/s1120/benchmark-outstanding-lch-weekly-2023-03-17.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1120" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBj4brNngC1y6JVLiO7YKaYe-vSc3vjJwFcAKG0tFggNvAaz03gr2KmRB1gpCvR06c4je64puTjDcM9waeyuSKDpGL_1LpHpT5Qu6X07qFD1mCnuRRu0r6YkylneJX_qL8Lb1qUru0XUpUy0tEMwaerWLq5XomtJHeVKqY8OG2-4_DkYexH9xgyrUrxA/s640/benchmark-outstanding-lch-weekly-2023-03-17.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 1: Outstanding amounts by benchmarks at LCH</b></p>
<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYx4xiMdvUhFEQxRrhhhLlf-CrHS_X2e-CrwVRpScmkjGqyJtcs02s6Us1c7dBD3xlUhf5-AITZQ7YZTDLe6RvGp1CRJ_cxEi1gMLZbRYoZ6PUXHZKCGXdGnWym2E9gf67sI7QVR7giRfZe-bt44Y9-8kXEzb7hZts7Qbccff_0zfhnH_zZgqfxL2T_Q/s1444/sofr-share-lch-weekly-2023-03-17.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1444" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYx4xiMdvUhFEQxRrhhhLlf-CrHS_X2e-CrwVRpScmkjGqyJtcs02s6Us1c7dBD3xlUhf5-AITZQ7YZTDLe6RvGp1CRJ_cxEi1gMLZbRYoZ6PUXHZKCGXdGnWym2E9gf67sI7QVR7giRfZe-bt44Y9-8kXEzb7hZts7Qbccff_0zfhnH_zZgqfxL2T_Q/s800/sofr-share-lch-weekly-2023-03-17.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="800" /></a></div>
<p style="text-align: center;"><b>Figure 2: Weekly share by product types at LCH</b></p><p style="text-align: center;"></p>
<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjlUbGN_SeHkvM7ify0d-TmNI2CKoBaWhq22T68Oo6n0ns0Gj_7CfNZR7x342qJwvZRzT84GdkMcOeU3l0y07xMjvPRIh-9RYFsm0cFafFPZIQJEpX3DAvIT2c4DulY6FvLLvELig2LMV_YLNuOFibKR9lTLLO6OXap-eGvHKZ36kclS5jnM97u-_FiDQ/s1120/sofr-volume-lch-isda-weekly-2023-03-17.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1120" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjlUbGN_SeHkvM7ify0d-TmNI2CKoBaWhq22T68Oo6n0ns0Gj_7CfNZR7x342qJwvZRzT84GdkMcOeU3l0y07xMjvPRIh-9RYFsm0cFafFPZIQJEpX3DAvIT2c4DulY6FvLLvELig2LMV_YLNuOFibKR9lTLLO6OXap-eGvHKZ36kclS5jnM97u-_FiDQ/s640/sofr-volume-lch-isda-weekly-2023-03-17.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 3: Weekly SOFR volume at LCH and as reported by ISDA (US regulatory figures based).</b></p>
muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-70617621072139231222023-02-28T12:53:00.001+01:002023-02-28T12:54:34.099+01:00Workshop multi-curve - Warsaw 23-24 March<p><a href="https://murisq.blogspot.com/p/management.html" target="_blank">Marc</a> will be presenting a two-day workshop on the”multi-curve and collateral framework and IBOR transition”. The workshop is organised by <a href="https://ceeta.pl/" target="_blank">CEETA</a> in Warsaw on 23-24 March.<p />
<p>The program is similar to Marc's typical <a href="https://murisq.blogspot.com/p/training.html#multicurve" target="_blank">Multi-curve and collateral framework: foundations, evolution and implementation</a> with recent updates on the IBOR transition. The specific program is available on LinkedIn at <a href="https://www.linkedin.com/posts/tomaszdendura_multi-curve-collateral-framework-by-henrard-activity-7029797799818870784-C5g8/">https://www.linkedin.com/posts/tomaszdendura_multi-curve-collateral-framework-by-henrard-activity-7029797799818870784-C5g8/</a><p/>
<p>You can contact the organizer <a href="mailto:tomasz.dendura@ceeta.pl">Tomasz Dendura</a> for the practical details. <br /></p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-35010585571039758542023-02-23T12:33:00.000+01:002023-02-23T12:33:44.380+01:00USD rate benchmarks 7 weeks in 2023<p>We are now 7 weeks into 2023. Where do we stand in term of USD rate benchmarks?</p>
<p>LIBOR volume continue to decrease significantly. At LCH, it represent less than 30% on a weekly basis with the last two weeks even below 10%.</p>
<p>As reported in our recent post on <a href="https://murisq.blogspot.com/2023/01/usd-benchmarks-winner-for-2022-is-fed.html" target="_blank">USD Benchmarks: the winner for 2022 is ... Fed Funds!</a>, Fed Funds dominate the USD landscape in nominal terms — not in DV01 weighted terms.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrPB9GNgL8Ky-BflTLusxm5KLeJWulnH9GgwCBFjLBhst54EGFN1akEBVXF1TCvsEw8vG8__k84AF3beTakqPirVSfZUdta_kZl4-zPC4IT7_VjBEK8rsm2yAyT4gWQiL-FiGRfSwkpkNOPnYhI9XIEBO-E43E91UfeQvYcdAHKSp0cSS1gbQ8st5TTw/s1428/sofr-share-lch-weekly-2023-02-17.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1428" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrPB9GNgL8Ky-BflTLusxm5KLeJWulnH9GgwCBFjLBhst54EGFN1akEBVXF1TCvsEw8vG8__k84AF3beTakqPirVSfZUdta_kZl4-zPC4IT7_VjBEK8rsm2yAyT4gWQiL-FiGRfSwkpkNOPnYhI9XIEBO-E43E91UfeQvYcdAHKSp0cSS1gbQ8st5TTw/s800/sofr-share-lch-weekly-2023-02-17.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="800" /></a></div>
<p style="text-align: center;"><b>Figure 1: Weekly share by product types at LCH</b></p><p style="text-align: center;"></p>
<p>If we look at the oputstanding amounts, the order has not changed for a year or so, with in decreasing order LIBOR-SOFR-EFFR. SOFR is closing the gap to LIBOR; LIBOR is around USD 60 trn down from more than USD 80 trn while SOFR is up to more than USD 55 trn from less than USD 20 trn a year ago. EFFR is around USD 25 trn. It seems that we approaching the date where SOFR will be above LIBOR. That date will be the final "SOFR First" date.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZrwyhuiEVs2I7tOF8Y_BOzE7h877Lgi5iTXeUVqTvNCXSxWj_75Cbw80PETR-Yzzxkk-JLKPiSDYaOmozrKk4Kk9MBpJRZJ-Pi-74SiR-6oeEd3fjp_8zCwQNu6ZvqM9US3Op2tOLjlE4ekB2He27AIPB_fozRSz3kxAZRIWIYxwu4JIH8HTn1tZ55A/s1120/benchmark-outstanding-lch-weekly-2023-02-17.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1120" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZrwyhuiEVs2I7tOF8Y_BOzE7h877Lgi5iTXeUVqTvNCXSxWj_75Cbw80PETR-Yzzxkk-JLKPiSDYaOmozrKk4Kk9MBpJRZJ-Pi-74SiR-6oeEd3fjp_8zCwQNu6ZvqM9US3Op2tOLjlE4ekB2He27AIPB_fozRSz3kxAZRIWIYxwu4JIH8HTn1tZ55A/s640/benchmark-outstanding-lch-weekly-2023-02-17.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 2: Outstanding amounts by benchmarks at LCH</b></p>
<p>We can compare the USD-SOFR derivartive volume to GBP-SONIA and EUR-ESTR. Obviously they are in different currencies and GBP and EUR attrach significantly less derivative volume in general. But the comparison is interesting as the difference in volume terms in not large. ESTR is even above SOFR in most of the weeks, except the last two weeks. For GBP, SONIA is the only significant benchmark. For EUR, there is still EURIBOR, without plan to stop it and ESTR as unique overnight benchmark. In USD, the situation is more complex with USD-LIBOR that is planned to stop in June 2023, and two liquid overnight benchmarks EFFR and SOFR — plus other less liquid benchmarks like AMERIBOR and BSBY.</p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgucgN6-BlvkYZfZxUpwtFB03FjBQ_BVs5-9laOMcpeUO_ShRGpAf1FfyGFis6zNtb02ZT4_qn5OE7CQshmzCJ5caS4TVEYWxGp1f636VsceCbPWx6cxvxxgcJfAsIS60DyB1IzkEFNSZ_ewoFZAURjewXIom9oNzNwNb5Zf_XyH9ju0ad2FeyTZeiHbw/s1120/estr-sofr-sonia-2023-02-17.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1120" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgucgN6-BlvkYZfZxUpwtFB03FjBQ_BVs5-9laOMcpeUO_ShRGpAf1FfyGFis6zNtb02ZT4_qn5OE7CQshmzCJ5caS4TVEYWxGp1f636VsceCbPWx6cxvxxgcJfAsIS60DyB1IzkEFNSZ_ewoFZAURjewXIom9oNzNwNb5Zf_XyH9ju0ad2FeyTZeiHbw/s640/estr-sofr-sonia-2023-02-17.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 3: Comparison between volume of GBP-SONIA, USD-SOFR and EUR-ESTR at LCH.</b></p>
<p>This shows that there is still some room before SOFR becomes the really dominant benchmark in USD rate derivatives.</p>
muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-24489938075174145982023-01-11T11:09:00.004+01:002023-02-17T12:38:09.491+01:00USD Benchmarks: the winner for 2022 is ... Fed Funds!<p>For the first post of the new year, we have been looking at the volume traded on LCH for 2022. In notional terms, we get a maybe unexpected benchmark winner: Effective Fed Funds Rates (EFFR). For the last couple of years, the discussion has been all around LIBOR v SOFR but somehow EFFR manage to emerge as the winner. For the year 2022, the results are EFFR 37.6%, SOFR 33.3% and LIBOR 29.2% (we ignored inflation, basis swaps and VNS for the above shares). The weekly figures for the year are provided in Figure 1.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgVtGt5r3yHZ6CHzLyR8CwceJCZP493Y_JKPu_ogGuymldfNIyj61cAOUPQSDmzjqJb7MGkeM3ebQfXI2JTCPHMDfTXXVBkEL0cnTvDewe069pov3mYJfSp2AYvH3CnJcVUpeXF1hO9KD43jMV4P3GLSwNm8RzFcZvavPSskcco6eAJuvuYMxuY57pESQ/s1430/sofr-share-lch-weekly-2022-12-30.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="830" data-original-width="1430" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgVtGt5r3yHZ6CHzLyR8CwceJCZP493Y_JKPu_ogGuymldfNIyj61cAOUPQSDmzjqJb7MGkeM3ebQfXI2JTCPHMDfTXXVBkEL0cnTvDewe069pov3mYJfSp2AYvH3CnJcVUpeXF1hO9KD43jMV4P3GLSwNm8RzFcZvavPSskcco6eAJuvuYMxuY57pESQ/s800/sofr-share-lch-weekly-2022-12-30.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="800" /></a></div>
<p style="text-align: center;"><b>Figure 1: Weekly share by product types at LCH</b></p>
<p>The figure used are in pure notional terms, not risk/PV01 weighted. On a risk weighted scale, the results would probably be different - the LCH risk weighted figure are not publicly available to our knowledge.</p>
<p>LIBOR trading almost disappeared in last week of the year to show the smallest share ever.</p>
<p>On an outstanding volume, the picture is very different. SOFR has increased on a regular basis and EFFR and LIBOR have trended downward. LIBOR has still the larger share in outstanding volume with around USD 60.4 trn, then comes SOFR with USD 47.7 trn and finally EFFR with 7.6 trn. The graph with the outstanding amounts is provided in Figure 2. (1) There was probably some compression activity close to year end as all outstanding volumes were down. Overall, the outstanding amount for LIBOR has been only done 25% (USD 80 to 60 trn), which sounds like a small decrease giving the expected LIBOR's disappearance in 6 months time. <br /></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcPVViAfF18zq1C4WKjgoMd-Jq6nM5zliPMjrn-Ik9O2mm6PfD7EseECf-_h17M-5ryzdwnlFx4ED_haq7TFwBDPaIgtmzq_2NF_pCBkrmu_9iml71_ayT_TaerVZ2XQkA-WJFxPGdGY_g9NJkwyp6K7obTDyMf89bl94VeCgD2xnS6xkKw-04_SCZNA/s1120/benchmark-outstanding-lch-weekly-2022-12-30.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1120" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcPVViAfF18zq1C4WKjgoMd-Jq6nM5zliPMjrn-Ik9O2mm6PfD7EseECf-_h17M-5ryzdwnlFx4ED_haq7TFwBDPaIgtmzq_2NF_pCBkrmu_9iml71_ayT_TaerVZ2XQkA-WJFxPGdGY_g9NJkwyp6K7obTDyMf89bl94VeCgD2xnS6xkKw-04_SCZNA/s640/benchmark-outstanding-lch-weekly-2022-12-30.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 2: Outstanding amounts by benchmarks at LCH</b></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjbq3YvUM1AWUR1dVFkOrn88PiHzAxDjsMyyepJqbHK2lhYz41mogbxW89oe6Cvui41GwUvfODpISuYss_JgAprJMewfbb7HTif7ijdveb_IqbFp8maG-iBkm-gG6QxyxOeXxqUREj7RBA4gDssbU6eahM2n8fOQC7VRK0SAEAXErP-ebmEp1LVXeiJw/s1120/sofr-volume-lch-isda-weekly-2022-12-30.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1120" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjbq3YvUM1AWUR1dVFkOrn88PiHzAxDjsMyyepJqbHK2lhYz41mogbxW89oe6Cvui41GwUvfODpISuYss_JgAprJMewfbb7HTif7ijdveb_IqbFp8maG-iBkm-gG6QxyxOeXxqUREj7RBA4gDssbU6eahM2n8fOQC7VRK0SAEAXErP-ebmEp1LVXeiJw/s640/sofr-volume-lch-isda-weekly-2022-12-30.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 3: Weekly SOFR volume at LCH and as reported by ISDA (US regulatory figures based).</b></p>
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<p>(1) Note that our outstanding amount graphs for EFFR were incorrect in some of our previous blogs. The latest values in each graph was correct but not the past values.</p>
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<p><i>Added 2023-02-01</i>: Following our blog, Clarus publish a complementary blog adding DV01 based figures. The post is available at <a href="https://www.clarusft.com/are-fed-funds-the-latest-winner-from-benchmark-reform/">https://www.clarusft.com/are-fed-funds-the-latest-winner-from-benchmark-reform/</a>. They confirmed our finding on a pure volume basis. On a DVO1 weighted basis, the picture is very different with SOFR dominating EFFR. Note also that on a DV01 weighted basis, the highest SOFR volume was in March 2022 and the trend has been slightly downward since.</p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-40112704829171014142022-12-30T19:20:00.002+01:002022-12-30T19:20:46.097+01:00LIBOR transition: approaching year end<p>We are approaching year end. One last "weekly" review before the yearly review next week. We have not been fully consistent with our weekly updates recently, but to our defense, there have not been huge changes in the weekly patterns.</p>
<p>The share between LIBOR, EFFR and SOFR are changing every week, but none of them is reaching 50%. So no real LIBOR, EFFR or SOFR first. The LIBOR share is decreasing but still significant.</p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjp55VT4BDJiAMirHSBv3AdUfGFlWEFHuy_BYODihhc70_wgRfRPRTtMECyO6b3ox2mbARGaBW4e3mlhBoqa7SccPvOjJuotJ6sRJkgYR9D1XxvE8cicO2Sppc9apG3hZfGMNNlwB68RgL8vJHPy67eILcu5YdDELSM8hjECA2rcdfLSClgB_ZzjOfAIQ/s1434/sofr-share-lch-weekly-2022-12-23.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1434" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjp55VT4BDJiAMirHSBv3AdUfGFlWEFHuy_BYODihhc70_wgRfRPRTtMECyO6b3ox2mbARGaBW4e3mlhBoqa7SccPvOjJuotJ6sRJkgYR9D1XxvE8cicO2Sppc9apG3hZfGMNNlwB68RgL8vJHPy67eILcu5YdDELSM8hjECA2rcdfLSClgB_ZzjOfAIQ/s800/sofr-share-lch-weekly-2022-12-23.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="800" /></a></div>
<p style="text-align: center;"><b>Figure 1: Weekly share by product types at LCH</b></p>
<p>The LCH figures and ISDA figures (based on US regulatory filling) are saying basically the same thing. The trend is in the increase of SOFR and decrease of LIBOR, but it is not a smooth trend. No major change in the last 9 months. <br /></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZ5rpqR_MXJsZNrWiJLHqrSkKRbBplA1EYXjfqTkyW7nPCPLjP8PoISxGP2jjmjqvxnUpHryJtW7kWUxlinVj77239auuOVWvNB3wHR1_BlCzrJz9XQlqDA1E2BHfHq5wFkMx89PjpswAVLH_j5PPr6q6RO7ATgPF1K7AOeAnW8NqXrfCe_UzXcl9vhQ/s1120/sofr-volume-lch-isda-weekly-2022-12-23.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1120" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZ5rpqR_MXJsZNrWiJLHqrSkKRbBplA1EYXjfqTkyW7nPCPLjP8PoISxGP2jjmjqvxnUpHryJtW7kWUxlinVj77239auuOVWvNB3wHR1_BlCzrJz9XQlqDA1E2BHfHq5wFkMx89PjpswAVLH_j5PPr6q6RO7ATgPF1K7AOeAnW8NqXrfCe_UzXcl9vhQ/s640/sofr-volume-lch-isda-weekly-2022-12-23.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 2: Weekly SOFR volume at LCH and as reported by ISDA (US regulatory figures based).</b></p>
<p>From an outstanding notional point of view, LIBOR is decreasing, SOFR is strongly increasing and EFFR is slightly increasing. We are still more than 10 trillions away from SOFR First.<br /></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjUfbnMfNmaK8-e8qbq4TSmW7H1h0gmEoM7L6URe6d3ZAybNAIZosd7OPJSxsEb9OUcsIfzbMpstcxIaOtnxb3a6wDmMdGK-9aZ3BfsyvFa2XfluMGZeYOuJT6BO48ChQ7IpRsp_JqxqDr8aG8F-KGh8VgSireUEFyRVLzlusL2GgC4Wh0wsyn6q0NnQ/s1120/benchmark-outstanding-lch-weekly-2022-12-23.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1120" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjUfbnMfNmaK8-e8qbq4TSmW7H1h0gmEoM7L6URe6d3ZAybNAIZosd7OPJSxsEb9OUcsIfzbMpstcxIaOtnxb3a6wDmMdGK-9aZ3BfsyvFa2XfluMGZeYOuJT6BO48ChQ7IpRsp_JqxqDr8aG8F-KGh8VgSireUEFyRVLzlusL2GgC4Wh0wsyn6q0NnQ/s640/benchmark-outstanding-lch-weekly-2022-12-23.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 3: Outstanding amounts by benchmarks at LCH</b></p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-30430158038923489782022-11-23T09:36:00.002+01:002022-11-23T09:56:24.755+01:00LIBOR First (where have we seen that before?)<p>We have not posted on LIBOR transition/SOFR progress for a month, expecting the subject to slowly disappear with the final LIBOR date approaching. But looking at last week data, we have to conclude, once more that we are back to</p>
<h4 style="text-align: center;"><span style="color: red;">LIBOR First!</span></h4>
<p>Both in relative terms and in absolute terms, SOFR has not really progressed in the last month. There is more LIBOR volume than SOFR volume. At LCH the LIBOR/SOFR split is 33.9%/30.9% and for ISDA figures (no EFFR figures provided, only outright swaps) it is 53.7%/46.3%. The absolute weekly volume for SOFR is similar to the one of February. The outstanding amounts are stable both for LIBOR and SOFR, SOFR is not catching-up anymore. The LIBOR volume is not risk decreasing. Note that a decent amount of LIBOR activity is probably in single period swaps (SPS, replacing the FRAs due to incoherent LIBOR fallback rules). The data available does not distinguish between the SPS and tenor swaps.<br /></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidwKomDJHy8_PbUavJjj8rfRkLW2r7k8F9IzZW7AjT3DZ6vGaIjmaffv7pSMpyacPjLszCwUew5fACrXrVEim8pr_sSXEX70cVVCm67OvN0RKar5fVNOeNAOM786zYDobtSd8vel5N8reCIfMgFqA62Le5GG0GDnD_3CZPWXA2ZgrgiRatbhGOTx8qWg/s1426/sofr-share-lch-weekly-2022-11-18.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1426" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidwKomDJHy8_PbUavJjj8rfRkLW2r7k8F9IzZW7AjT3DZ6vGaIjmaffv7pSMpyacPjLszCwUew5fACrXrVEim8pr_sSXEX70cVVCm67OvN0RKar5fVNOeNAOM786zYDobtSd8vel5N8reCIfMgFqA62Le5GG0GDnD_3CZPWXA2ZgrgiRatbhGOTx8qWg/s8000/sofr-share-lch-weekly-2022-11-18.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="800" /></a></div>
<p style="text-align: center;"><b>Figure 1: Weekly share by product types at LCH</b></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCPkDH2q2o3Z-d5ewUZQvXkj05xOc86SxOKh-M7aPA-nxjcMNlYpM5peRWFBuaNKTVOXqyJQ_BN6rPTshwjgn5kPJ1W0tomCzRkYoBcR2H93a0DArOKst53E3f2-dpgUomcc6YWk7kQ8TCl4qhec5OiUaHvOUaEACkB5iBawYWrmxPNuSxtOGNRBqrNw/s1120/benchmark-outstanding-lch-weekly-2022-11-18.jpg" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="840" data-original-width="1120" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCPkDH2q2o3Z-d5ewUZQvXkj05xOc86SxOKh-M7aPA-nxjcMNlYpM5peRWFBuaNKTVOXqyJQ_BN6rPTshwjgn5kPJ1W0tomCzRkYoBcR2H93a0DArOKst53E3f2-dpgUomcc6YWk7kQ8TCl4qhec5OiUaHvOUaEACkB5iBawYWrmxPNuSxtOGNRBqrNw/s640/benchmark-outstanding-lch-weekly-2022-11-18.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 2: Outstanding amounts by benchmarks at LCH</b></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLaddCXlAXmZHQr4dw4m-C1D_qfYhHm5fBRHpheXLCOj1fcwiw4zXlfccI2-y1H-bw6WjIdALXNViK7vRIKRFiArYAMKIVxTRvy7WSOiDN8WhaJuJ3CHzL5jCw1Nn2O5xnSOQ4oiN1vBGBFVvacSKg6yJpENg97-JgODyTBLU6DEEyHbfVJeMsR9__-A/s1120/sofr-volume-lch-isda-weekly-2022-11-18.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="840" data-original-width="1120" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLaddCXlAXmZHQr4dw4m-C1D_qfYhHm5fBRHpheXLCOj1fcwiw4zXlfccI2-y1H-bw6WjIdALXNViK7vRIKRFiArYAMKIVxTRvy7WSOiDN8WhaJuJ3CHzL5jCw1Nn2O5xnSOQ4oiN1vBGBFVvacSKg6yJpENg97-JgODyTBLU6DEEyHbfVJeMsR9__-A/s640/sofr-volume-lch-isda-weekly-2022-11-18.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 3: Weekly SOFR volume at LCH and as reported by ISDA (US regulatory figures based).</b></p>
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<p>A different perspective on the LIBOR/SOFR data from Clarus: <a href="https://www.clarusft.com/whats-new-in-term-sofr/" target="_blank">What’s New in Term SOFR?</a> </p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-18562488998565214082022-10-24T17:55:00.001+02:002022-10-24T17:55:27.337+02:00LIBOR fighting back!<p>A couple of graphs from last week. It appears that LIBOR is fighting back against SOFR!</p><p>From the ISDA figures, SOFR outright is well below LIBOR outright (SOFR around 40% of the market).</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2jSmGnxDy0nktXntEEHr1Hjs-4m6WiiHj7hKssNTuEwOPCuXj4irmDpRQU2pDBxYN9nvF6p2RfFgXnNrj3z3N2akOIiRkkbzs1SOQDTOJOm-8W2Bf-_oCZWVHZI_1mZv8MlLf0Akhsbaz4a7WqR7YgZPWti-hisXSP-NNzhKsxlggqXopEqjcL7mf7A/s560/sofr-volume-lch-isda-weekly-2022-10-21.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="420" data-original-width="560" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2jSmGnxDy0nktXntEEHr1Hjs-4m6WiiHj7hKssNTuEwOPCuXj4irmDpRQU2pDBxYN9nvF6p2RfFgXnNrj3z3N2akOIiRkkbzs1SOQDTOJOm-8W2Bf-_oCZWVHZI_1mZv8MlLf0Akhsbaz4a7WqR7YgZPWti-hisXSP-NNzhKsxlggqXopEqjcL7mf7A/s640/sofr-volume-lch-isda-weekly-2022-10-21.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 1: Weekly volume for SOFR at LCH and as reported by ISDA (US regulatory figures).</b></p>
<p>At LCH, the SOFR swaps represented around 36%. Remember ISDA does not report EFFR data and it is based on regulatory figures (notional well below the notional traded at LCH).<br /></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQZIAeNu7qUW7WW48KwOuiSUske3Mf246n4f7mthFDB5gIoK9CqrMRWkvZb_d0EDnpp53se7LaOmMZKsrIjSsqwQYxJRs_zDOYQY889T2DP3MQlkYkgOOZjto4EXxnk0KUIYAPiI8tCY1Rryos8EOfqryYavRn4sXrrvwGTzaj5f2TOG2UkpM0T3E3mg/s713/sofr-share-lch-weekly-2022-10-21.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="420" data-original-width="713" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQZIAeNu7qUW7WW48KwOuiSUske3Mf246n4f7mthFDB5gIoK9CqrMRWkvZb_d0EDnpp53se7LaOmMZKsrIjSsqwQYxJRs_zDOYQY889T2DP3MQlkYkgOOZjto4EXxnk0KUIYAPiI8tCY1Rryos8EOfqryYavRn4sXrrvwGTzaj5f2TOG2UkpM0T3E3mg/s800/sofr-share-lch-weekly-2022-10-21.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="800" /></a></div>
<p style="text-align: center;"><b>Figure 2: Weekly share by product types at LCH</b></p>
<p>The larger than in the previous weeks LIBOR notional is not linked to cancellations or risk reduction. If anything, the LIBOR outstanding notional has increased over the last weeks.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWFa40mLm5qKZqtQFuVCxALFMicARbJijGL-MX4yBLwKDxXcNZz5jekyOMmqTWZnwcl-4yJpc3CTIrLhN-sj9fckKN5h1bIUC0JS1o2SBAxks_FBfr5hG7u18tuMUTjzTAlomkGIlzVAiTO-E8vBPn0yP5a3y0dkPpWuZdKCHqt2VfRNs5VRgmrcTW1w/s560/benchmark-outstanding-lch-weekly-2022-10-21.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="420" data-original-width="560" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWFa40mLm5qKZqtQFuVCxALFMicARbJijGL-MX4yBLwKDxXcNZz5jekyOMmqTWZnwcl-4yJpc3CTIrLhN-sj9fckKN5h1bIUC0JS1o2SBAxks_FBfr5hG7u18tuMUTjzTAlomkGIlzVAiTO-E8vBPn0yP5a3y0dkPpWuZdKCHqt2VfRNs5VRgmrcTW1w/s320/benchmark-outstanding-lch-weekly-2022-10-21.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 3: Outstanding USD derivatives volumes at LCH.</b></p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-62553297036044233212022-10-05T14:07:00.001+02:002022-10-05T14:07:11.157+02:00Bond futures delivery option - back to ATM<p>For a very long times rates on government bonds have been low. In particular they have been low with respect to the “notional rates” used in computing the conversion factors in bond futures.<br /><br />Those rates were traditionally at 6.00% and are still at that level for US Treasury futures and most of German bonds futures. For the German bonds, the exception is the ultra long bond futures which are based on a 4.00% notional coupon. On the UK Gilt side, most of the notional rates are at 4.00% with the exception of the Short Gilt Futures based on a 3.00% notional coupon.</p>
<p>The recent market movements have brought the UK Gilt rates around 4.00%. Does this matter? What is the impact of the “notional rates” on the behaviour of bond futures?</p>
<p>Bond futures are settled by the physical delivery of a bond. The deliverable bonds are government bonds with a specific maturity range (plus some other conditions on size). The amount paid at delivery for the bond is the futures price multiplied by a “conversion factor” (and the notional). This conversion factor is computed (as a clean price) from the actual bond and from the notional rate. The impact of all this is that the notional rate act as some kind of strike. If the yield is below the notional rate, the shorter maturity bond is usually the cheapest-to-deliver; if the yield is above that rate, the longer maturity bonds is usually cheapest-to-deliver.</p>
<p>They are subtilties around that long/short maturity, in particular dependent on the coupons, as the EUR market has reminded us recently (see <a href="https://www.risk.net/derivatives/7952466/bund-volatility-sparks-uncertainty-around-futures-delivery" target="_blank">Bund volatility sparks uncertainty around futures delivery</a>).</p>
<p>The delivery option that had been forgotten for a long time is now back in the discussion. A good opportunity to referenced to a more than 15 years old paper by Marc: <a href="https://ssrn.com/abstract=881741" target="_blank">Bond Futures and Their Options: More than the Cheapest-to-Deliver; Margining and Quality Option</a> (2006). </p>
<p>Obviously, the techniques to analyze this issue have evolved over the last 15 years, and we have implemented several of them. Those proprietary developments are currently not available publicly, but are available to our advisory clients.</p>
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<p>Don't hesitate to <a href="mailto:info@murisq.com">contact us</a> if you are interested by modelling embedded options in vanilla products.</p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-44366947813203077342022-10-05T13:42:00.001+02:002022-10-05T13:42:08.140+02:00Is SOFR first genuinely starting?<p>"SOFR first" has been mentioned for a long time and was suppose to start in July 2021. There have been many partial achievements along the way. To our opinion, last week was the first time we can mention SOFR First without adding inverted commas around it.</p>
<p>The LCH data indicates that more than 50% of the USD LCH-cleared interest rate derivatives was based on SOFR. Up to now, the achievements had been relative, like "more SOFR than LIBOR". This time, we can really say for the first time "SOFR dominates the USD rate benchmarks".</p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8QfWl0-Zm4aAfgrHaER9sex_NTN2rvCOCiaHFXAu3WbRGOfDKMA-q6adhIEChCgLG-6nM1p1_t7sYk5oLceb_TiGY9o8fc8xJEoZGf22ITK1tFSX8Q6gnuMKpJoWs7IVDQVksSfcvyiRLshPFJ95RxoYUbPUgq-vWKB7xoYMBhk_dA60ppfmm2p9gGg/s729/sofr-share-lch-weekly-2022-09-30.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="420" data-original-width="729" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8QfWl0-Zm4aAfgrHaER9sex_NTN2rvCOCiaHFXAu3WbRGOfDKMA-q6adhIEChCgLG-6nM1p1_t7sYk5oLceb_TiGY9o8fc8xJEoZGf22ITK1tFSX8Q6gnuMKpJoWs7IVDQVksSfcvyiRLshPFJ95RxoYUbPUgq-vWKB7xoYMBhk_dA60ppfmm2p9gGg/s800/sofr-share-lch-weekly-2022-09-30.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="800" /></a></div>
<p style="text-align: center;"><b>Figure 1: Weekly share by product types at LCH</b></p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-1603740584633470562022-09-22T11:38:00.001+02:002022-09-22T11:38:43.935+02:00Milestone 100 trillions<p>Last week the 100 trillions milestone has been reached. The YTD volume at LCH passed that milestone for both LIBOR and SOFR on the same week. Emphasizing if needed that if we are in a "SOFR First" period, it is only by a very small margin.</p><p>The YTD numbers were on 2022-09-16: LIBOR 100.29 trn, SOFR 101.85 trn and EFFR ... 130.32 trn. If SOFR beat LIBOR by the smallest of margin, it is still more than 25% below EFFR.</p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg0eKzDnUIEpFkszytc8Y84jAxL1D-0fb6aP5QgIcqsGDvY9na6UM2p-BdeNSptrEV0fzsIMkQ8jgbWC-fWGUeUtinkx2VmHr1nEa3BD2_A-N_xgBOpNE2egd_D9xE-ylzQzun5d0EOK1DcfXIsEnNvb0Ut1s-HyIhBBxd2oY8p4yv_QoCYGKzXTsMXEg/s732/sofr-share-lch-weekly-2022-09-16.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="420" data-original-width="732" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg0eKzDnUIEpFkszytc8Y84jAxL1D-0fb6aP5QgIcqsGDvY9na6UM2p-BdeNSptrEV0fzsIMkQ8jgbWC-fWGUeUtinkx2VmHr1nEa3BD2_A-N_xgBOpNE2egd_D9xE-ylzQzun5d0EOK1DcfXIsEnNvb0Ut1s-HyIhBBxd2oY8p4yv_QoCYGKzXTsMXEg/s800/sofr-share-lch-weekly-2022-09-16.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="800" /></a></div>
<p style="text-align: center;"><b>Figure 1: Weekly share by product types at LCH</b></p>
<p>The recent period has seen several monetary policy changes in EUR and USD. The activity around those policy changes is clearly seen in the EUR-ESTR volume data, a lot less in the USD-SOFR data. For USD, EFFR still take a large part of the short term activity.</p>
<p>The comparison between EUR-ESTR and USD-SOFR is provided in Figure 2. The usual clear difference in the short part of the curve is clearly visible.</p>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg76ppELbtD4GY7ogkhUvFEqqrqu0_o2KkzYqpni0R-TW4TkNZgtN05utY86IlFtg1OgFdO6eOKU2mSuaGiMLGtghB5VKA93enZektZzZUWFVRGZoiWpI_OH9yNS-AGmc1PW-GGdpkxRddpyjrY3NGUPNn6xrCiKqPhC7Rht5xux94B5nsquZtAIFzZTw/s560/sofr-tenor-split-2022-09-16.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="420" data-original-width="560" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg76ppELbtD4GY7ogkhUvFEqqrqu0_o2KkzYqpni0R-TW4TkNZgtN05utY86IlFtg1OgFdO6eOKU2mSuaGiMLGtghB5VKA93enZektZzZUWFVRGZoiWpI_OH9yNS-AGmc1PW-GGdpkxRddpyjrY3NGUPNn6xrCiKqPhC7Rht5xux94B5nsquZtAIFzZTw/s320/sofr-tenor-split-2022-09-16.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="320" /></a>
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7tHRMEvchOEdOUVgEB5K7BySbMkknUSeC9nz95e7B5OTF4B79-FyLBnrK24LBcTxZ-24lKGyQprJ8BOHRBSizo2q1I6YH233Q8Nve3gvfgdP58JlXRS1gOsWM8Qq1hgzJiO-9dfSrAIw6aB2ksGUMgWUmGZFpaQ5cRN-mDZDgQ1LRTWDgOfcX_IJ2Bw/s560/estr-tenor-split-2022-09-16.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="420" data-original-width="560" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7tHRMEvchOEdOUVgEB5K7BySbMkknUSeC9nz95e7B5OTF4B79-FyLBnrK24LBcTxZ-24lKGyQprJ8BOHRBSizo2q1I6YH233Q8Nve3gvfgdP58JlXRS1gOsWM8Qq1hgzJiO-9dfSrAIw6aB2ksGUMgWUmGZFpaQ5cRN-mDZDgQ1LRTWDgOfcX_IJ2Bw/s320/estr-tenor-split-2022-09-16.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="320" /></a>
</div>
<p style="text-align: center;"><b>Figure 2: USD-SOFR and EUR-ESTR weekly volume comparison.</b></p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-45240534292893443352022-09-14T21:03:00.003+02:002022-09-14T21:03:37.248+02:00Oops again - back to SOFR Second<p>Each week brings a new "MyBenchmark First" moment. This week, the winner is EFFR!</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGSs7sjETX2bAb0GfP9JJVPlL6JQOqe5VquXmRTiivZZEVkN2At3oejOwtAfE7xxOBs3zkk0NPnSlqWESHSfG3CR_FXicmrNM2tpv5BzIlF5YYZjEfDztqP3OPzKI_KbsmDZeS4QjUJgNOi5jyRcddIwalgYKH4elREpl5lA85PXZwwGiL5U2k5tfZMA/s1977/sofr-share-lch-weekly-2022-09-09.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1166" data-original-width="1977" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGSs7sjETX2bAb0GfP9JJVPlL6JQOqe5VquXmRTiivZZEVkN2At3oejOwtAfE7xxOBs3zkk0NPnSlqWESHSfG3CR_FXicmrNM2tpv5BzIlF5YYZjEfDztqP3OPzKI_KbsmDZeS4QjUJgNOi5jyRcddIwalgYKH4elREpl5lA85PXZwwGiL5U2k5tfZMA/s800/sofr-share-lch-weekly-2022-09-09.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="800" /></a></div>
<p style="text-align: center;"><b>Figure 1: Weekly share by product types at LCH</b></p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-33715474844078581782022-09-09T10:47:00.001+02:002022-09-09T10:47:37.780+02:00Back to SOFR First - LIBOR Futures transition<p>A couple of weeks ago we were <a href="https://murisq.blogspot.com/2022/08/libor-transition-back-to-libor-first.html" target="_blank">back to LIBOR First</a>, this week we continue the back and forth and it is ... SOFR First.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZuliMSBiGW76eF5G35GWYUYiDMS6kg3bBLGrBAwsdPLQxEWWLhjI-cUHy_WINDIau6QxraSfMzpQG1HoPLEuAjGsR_F4imqVixQH5-5wnmy1BSd0cILivZWBI0B3BX0zNZTNEsMMS5jIL5uf9AmL1md9PKVigGmFlrJ8EC9yG1LYW3xg1BFC0hnAQfw/s2011/sofr-share-lch-weekly-2022-09-02.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1166" data-original-width="2011" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZuliMSBiGW76eF5G35GWYUYiDMS6kg3bBLGrBAwsdPLQxEWWLhjI-cUHy_WINDIau6QxraSfMzpQG1HoPLEuAjGsR_F4imqVixQH5-5wnmy1BSd0cILivZWBI0B3BX0zNZTNEsMMS5jIL5uf9AmL1md9PKVigGmFlrJ8EC9yG1LYW3xg1BFC0hnAQfw/s640/sofr-share-lch-weekly-2022-09-02.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="800" /></a></div>
<p style="text-align: center;"><b>Figure 1: Weekly share by product types at LCH</b></p>
<p>On the LIBOR futures side, <a href="https://www.cmegroup.com/articles/2022/eurodollar-fallback-implementation-proposal.html" target="_blank">CME has announced its proposed conversion date for the LIBOR futures to SOFR futures</a>: 14 April 2023. It is a good news that we now have a date. But it also means that anybody who has traded a post June 2023 LIBOR futures in the last years did not know what he was trading! The cessation of LIBOR in June 2023 has been announced a couple of years ago (on 5 March 2021) but the LIBOR fallback for one of the most liquid LIBOR instrument is only announced now. Actually it is not even the definitive fallback that is announced now, but only a "proposal" that has still to go through regulatory approval and consultation. </p><p>What is the impact of choosing the date 14 April 2023 on the pricing of the futures? If you cannot answer that question, maybe you need external help/advise on the transition. A detail answer is part of our "<a href="https://murisq.blogspot.com/p/training.html#libor-future" target="_blank">Benchmarks in transition</a>" course.</p>
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<p>Don't hesitate to <a href="mailto:info@murisq.com">contact us</a> if you are interested by benchmark transition advisory or training.</p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-85557904961128342692022-08-25T10:42:00.001+02:002022-08-25T10:42:27.259+02:00LIBOR transition: Back to LIBOR first - again and again!<p>Last week, we were saying "<a href="https://murisq.blogspot.com/2022/08/sofr-slowly-getting-to-sofr-first.html" target="_blank">SOFR: slowly getting to SOFR First</a>"; this week it seems we have to take that back. This week title is LIBOR transition:: Back to LIBOR first - again and again!, as reference to the "<a href="https://murisq.blogspot.com/2022/07/libor-transition-back-to-libor-first_25.html" target="_blank">LIBOR Transition: Back to "LIBOR First" - again!</a>" post from one month ago. The reason is the same, LIBOR appears very sticky. Each time the market seems to definitively move to SOFR first, LIBOR comes back with a vengeance and take over again. </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgElorrz2KYa8PABDnrPkXcyABfcalV3B2Kf6Wq5MhO9N950-B0yKaMOldYXnUs5dvHngE37tUhRRb5QhPBq8PYlEzl5B-CPN8-Ooz3clt-uJDFIrLAnLFVzmAgaWrZkOruZHk90tFPrVcqBIFTeVdZTrwYqqsoYTjjfhQoAj7zfltourib9DQea0_H4w/s1983/sofr-share-lch-weekly-2022-08-19.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1166" data-original-width="1983" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgElorrz2KYa8PABDnrPkXcyABfcalV3B2Kf6Wq5MhO9N950-B0yKaMOldYXnUs5dvHngE37tUhRRb5QhPBq8PYlEzl5B-CPN8-Ooz3clt-uJDFIrLAnLFVzmAgaWrZkOruZHk90tFPrVcqBIFTeVdZTrwYqqsoYTjjfhQoAj7zfltourib9DQea0_H4w/s640/sofr-share-lch-weekly-2022-08-19.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="800" /></a></div>
<p style="text-align: center;"><b>Figure 1: Weekly share by product types at LCH</b></p>
<p>The LIBOR return is visible both in LCH numbers displayed in Figure 1 and in ISDA-US regulatory numbers visible in Figure 2. In both cases, the weekly volume for LIBOR is above the weekly volume for SOFR.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKcSbEkM8vqkV0h6JU-WO7Czt-neFd9VvooRzo_czDulbka3oMH-v4vBxO0_lg2uoVAUbQbP8kZX6fMvJZbHbR0oAPiHNkfwN59rpchewuPuyZbDNqvz07a6_3yh991KmxggszXUI_EJaDdL4S5-WzBZNZXtJJrvB08_NlipKLAO4zRqZ4nEdl_7Lm1Q/s1555/sofr-volume-lch-isda-weekly-2022-08-19.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1166" data-original-width="1555" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKcSbEkM8vqkV0h6JU-WO7Czt-neFd9VvooRzo_czDulbka3oMH-v4vBxO0_lg2uoVAUbQbP8kZX6fMvJZbHbR0oAPiHNkfwN59rpchewuPuyZbDNqvz07a6_3yh991KmxggszXUI_EJaDdL4S5-WzBZNZXtJJrvB08_NlipKLAO4zRqZ4nEdl_7Lm1Q/s640/sofr-volume-lch-isda-weekly-2022-08-19.jpg" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 2: Weekly SOFR volume at LCH and as reported by ISDA (US regulatory figures based).</b></p>
<p>At the outstanding amounts level, the picture is not very different. Over last week, outstanding LIBOR amounts have increased (slightly). The LIBOR volume is far from being "risk reducing". The outstanding SOFR volume is below its peak from 2 weeks ago as visible in Figure 3. </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDwEjNuwsRTNv6Et3pkSVWSiGYjormi65qysWf_ThAQ7fefgHsIViTH5XxajWzprY0w1eHi8BRrZCrVVpyDsP8D5pQkjHDWxSucLCkEOu4YgBzlAuE2gB9BoVtlSUXWFkc18Ujq1QJMDZnxoi15LFOElQyh2AzzuSxdOvO2lr75Gt-RK713UeXC_jNMA/s1555/benchmark-outstanding-lch-weekly-2022-08-19.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1166" data-original-width="1555" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDwEjNuwsRTNv6Et3pkSVWSiGYjormi65qysWf_ThAQ7fefgHsIViTH5XxajWzprY0w1eHi8BRrZCrVVpyDsP8D5pQkjHDWxSucLCkEOu4YgBzlAuE2gB9BoVtlSUXWFkc18Ujq1QJMDZnxoi15LFOElQyh2AzzuSxdOvO2lr75Gt-RK713UeXC_jNMA/s640/benchmark-outstanding-lch-weekly-2022-08-19.jpg" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 3: Outstanding amounts by benchmarks at LCH</b></p>
<p>More than 5 years after the "<i>Future of LIBOR</i>" speech, almost 18 months after the announcement of the definitive <i>LIBOR dismissal</i> and more than one year after the <i>SOFR First</i> announcement; LIBOR is back to the forefront.</p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0tag:blogger.com,1999:blog-1420931340745521736.post-78617136768216372692022-08-18T11:48:00.003+02:002022-08-18T11:54:18.011+02:00SOFR: slowly getting to SOFR First<p>More than 5 years after the "<i>Future of LIBOR</i>" speech, almost 18 months after the announcement of the definitive <i>LIBOR dismissal</i> and more than one year after the <i>SOFR First</i> announcement; LIBOR is still traded in huge amounts. Only for last week LCH cleared IRS, there was 1.3 trillions USD traded.</p><p>But we see a slow progress. LIBOR volumes and outstanding notionals are slowly trending downward with some ups and downs; SOFR volumes and outstanding notionals are slowly trending upward with some ups and downs.</p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpxf5dfjpqMsaUfH7CVMR4ABGoVgHq0gUj-ld5BoguRVqxbPyJrDZam02FfSfukQ0eHlufFTn4-sP7Ag0Pve_abfIt97EhA4NVKFimeZF9k9H3prtp__DQbr-b5B3D4hGVoJ3v-goxBbvTKtG2WfKF1s9kcP6MEdKELUHDvZcZiAVMFzNxKsfQW-iUcw/s2016/sofr-share-lch-weekly-2022-08-12.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1166" data-original-width="2016" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpxf5dfjpqMsaUfH7CVMR4ABGoVgHq0gUj-ld5BoguRVqxbPyJrDZam02FfSfukQ0eHlufFTn4-sP7Ag0Pve_abfIt97EhA4NVKFimeZF9k9H3prtp__DQbr-b5B3D4hGVoJ3v-goxBbvTKtG2WfKF1s9kcP6MEdKELUHDvZcZiAVMFzNxKsfQW-iUcw/s800/sofr-share-lch-weekly-2022-08-12.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="800" /></a></div>
<p style="text-align: center;"><b>Figure 1: Weekly share by product types at LCH</b></p>
<p>Speaking of outstanding amount, the SOFR outstanding amount at LCH has decrease last week by 895 billions, the highest decrease ever. Nothing to be afraid of as there is a lot of short term products and they come naturally to maturity. But it may mean that we are approaching the "SOFR" peak. Note also that in term of outstanding amounts, SOFR is still well behind LIBOR with a 40 v 74 (trillions) score.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEib3C4fUYOhReK0RLLWEmLn25xmWlmVwQtQ1TEzBi-fxQjfIHqMALs4h0chp5CtXezzbkBtf081928yr6_D01fgnrOw53da8ElsRIfiUsbXQLs-yZ7rZB1BLeKLSh9IQbjTZuYDIMbkMcyVnDpUOBO4bLYcehSdyTP6SEd1zLpYqM7F8kY5JQmEO6V7Kg/s1555/benchmark-outstanding-lch-weekly-2022-08-12.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1166" data-original-width="1555" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEib3C4fUYOhReK0RLLWEmLn25xmWlmVwQtQ1TEzBi-fxQjfIHqMALs4h0chp5CtXezzbkBtf081928yr6_D01fgnrOw53da8ElsRIfiUsbXQLs-yZ7rZB1BLeKLSh9IQbjTZuYDIMbkMcyVnDpUOBO4bLYcehSdyTP6SEd1zLpYqM7F8kY5JQmEO6V7Kg/s640/benchmark-outstanding-lch-weekly-2022-08-12.jpg" style="background-color: white; border: 0px none; padding: 0px;" width="640" /></a></div>
<p style="text-align: center;"><b>Figure 2: Outstanding amounts by benchmarks at LCH</b></p>
<p>Note that the "<a href="https://www.cmegroup.com/trading/interest-rates/files/cme-conversion-for-usd-libor-cleared-swaps.pdf" target="_blank">CME Conversion for USD LIBOR Cleared Swaps</a>" rules have just been published. It means that since 2017, the market has been trading instrument linked to LIBOR, knowing that LIBOR would disappear and is only learning now what it has been trading for the last 5 years! Not a big success in term of transparency.</p><p></p><p></p>muRisQ Advisoryhttp://www.blogger.com/profile/11091577407387024056noreply@blogger.com0