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ASX 5 Year Treasury Bond Future


Trading highlights as at 24 February 2021

  • Over 315,000 contracts traded since launch (30th November 2020)
  • Open Interest: 100,364
  • Average Daily Volume: 7,400
  • EFPs (bond and swap) represent 32% of volume traded
  • Broad market participation across a range of banks, buy side and prop firms
  • 3 Market Makers pricing throughout the day and part of the night session, supporting healthy levels of liquidity and market depth

Learn more
 

Interest rate futures - 2020 wrap

2020 was a challenging year for interest rate markets globally with FIA recently reporting a decline in global turnover and Open Interest of 13% and 19% respectively when compared to 2019. Australia was no exception with turnover and Open Interest down 16% and 17% when compared to 2019. The introduction of un-precented RBA monetary policy measures designed to effectively reduce the cost of borrowing by lowering the official Cash Rate and to target the 3 year bond yield, had the combined effect of compressing interest rates (particularly at the front end of the curve), market volatility and turnover. In contrast, increased issuance from the AOFM, particularly in the 10-12 year part of the curve, drove record levels of Open Interest and turnover in the 10 Year Bond Future.

The 30 Day Interbank Cash Rate Futures and 90 Day Bank Bill Futures were the most affected by the low rate, low volatility environment with turnover down 56% and 51% respectively when compared to 2019. While the 3 year contract continues to remain an important hedging tool, the effect of Yield Curve Control can be seen in lower levels of Open Interest and turnover when compared to 2019, down 24% and 18% respectively. The 10 Year Bond Future was the exception with turnover and Open Interest both up 13% when compared to 2019, largely driven by increased issuance from the AOFM and relatively higher levels of volatility at the longer end of the curve. 

The 5 Year Bond Future was launched at the end of 2020 to bridge the gap between the 3 and 10 Year Bond Futures.  By the end of 2020, there were approximately $270 billion in physical Treasury bonds sitting between the lines that underpin the 3 and 10 year contracts. The 5 Year Bond Future provides an additional liquidity point and hedging tool at the mid part of the curve that allows market participants to manage their risk exposure in a more efficient and effective manner. 

Q4 2020 

The Q4 2020 rates futures volumes were largely in line with Q3 2020, reaching 31 million contracts vs 31.8 million in Q3.  Activity at the front end of the curve picked up in Q4 with the 30 Day Interbank Cash Rate Futures and 90 Day Bank Bill Futures up 78% and 4% respectively vs Q3, largely driven by expectations of an RBA rate cut in November. 

Turnover in the 3 Year Bond Future was down 10% while Open Interest at the end of Q4 was down 30% when compared to the end of Q3. Activity in the 10 Year Bond Future was largely in line with Q3 with turnover up 1% while Open Interest remained strong at 1.4 million contracts (down 8% when compared to the end of Q3). 

Open Interest in the 20 Year Bond Future increased by 23% to 17,500 in Q4 driven by the increase in government issuance.

The December roll represented the second roll with reduced tick increments for the 3 and 10 Year Bond Futures.  Similar to the September roll, the market was orderly and well spread throughout the 5 day period. The changing Open Interest dynamic between the 3 and 10 Year Bond Futures was reflected in the 3 and 10 Year roll volume. 

  • 3 year roll activity was down 10% vs September, largely driven by the decline in Open Interest which was 24% lower than September. This was offset by 10 year roll activity which was up 6% vs September and 13% vs June (pre tick change).
  • 10 year activity was driven by elevated levels of Open Interest on the back of increased AOFM issuance and relative levels of volatility at the long end of the curve. 
  • Activity was more evenly distributed across the roll period with Participants commencing their roll activity early.
  • Bid/offer spreads remained at the finest tick increment throughout the period.
  • 3 year depth on the bid side was somewhat reduced when compared to September and June but was in line with levels seen in 2019, while 10 year depth on the bid side was commensurate with prior rolls. Order book depth on the offer side was noticeably lower across both contracts. 

ASX will continue to monitor the effects of reduced tick size throughout the March 21 roll. 

A total of 86,460 90 Day Bank Bill Futures contracts were taken to cash settlement, an increase of 20% vs September. 

OTC 

Global AUD OTC swap volumes continue to be lower driven by a significant decrease in shorter-date interest rate swap and OIS volumes as a result of the low rate environment and yield curve control.  ASX’s OTC Clearing service continues to perform well in this environment, with total notional cleared of A$1.88 trillion in Q4 2020, up 3% vs Q3 2020. 

ASX has grown its activity and market share in longer dated interest rate swaps, with Weighted Average Maturity of ASX Cleared Interest Rate Swaps growing 52% to 1.95 years during calendar year 2020 with market participants taking advantage of ASX’s lower total cost of clearing and the available cross-margining offsets (average 40% cross-margining benefit across users of ASX’s Margin Optimisation service).

NZD OTC Clearing activity has continued to grow during Q4 2020 with NZ$32bn notional value cleared across NZ Interest Rate Swaps and NZ Overnight Index Swaps. ASX continues to be a highly capital and cost efficient venue for AUD and NZD interest rate derivatives via its ability to offer both cross-product (futures vs OTC swaps) and cross-currency (AUD vs NZD) margin offsets across its Rates product suite.

A$1.875 trillion

Total notional cleared in Q4 2020

↑ 3%

in total notional cleared 

Q4 2020 vs Q3 2020

1.95 years

Weighted Average Maturity of ASX Cleared OTC swaps

↑ 52%

during calendar year 2020 

40%

Average Cross-Margining benefit across users of ASX’s Margin Optimisation Service.

Automated Futures vs OTC cross-margining 

 

 

Access charts and insights on the Rates futures OTC swap volumes

 

BBSW 

The enhanced BBSW calculation methodology went live on the 7 December 2020. These changes were delivered after a formal 1-month market wide consultation and a successful parallel-run period.

The following changes were made in order to increase the frequency with which BBSW is formed using transaction data:

  • Widening the maturity pool for the 2-6-month tenors to +/- 10 Business Days and introducing an asymmetric maturity pool for the 1-month tenor of +10/-5 Business Days.
  • Lowering the volume threshold for the 1-,3- and 6-month tenors from $200m to $100m
  • Introducing a Weighted Least Squares Regression (WLSR) methodology to complement the existing VWAP methodology
  • Progressing to the NBBO layer of the calculation waterfall in specific circumstances.

ASX recently completed the annual prime bank nomination survey. On January 12 2021, a market notice was published confirming the prime banks will remain unchanged for the upcoming year. 

Austraclear – Linked Settlement and Market Repo enhancements

Austraclear will introduce new Linked Settlement and Market Repo functionality on 1 March 2021 to further enhance settlement efficiencies in the debt securities and repo market.    

The Linked Settlement functionality will allow Participants to link a group of eligible transactions for simultaneous settlement by transfer of the net amount of cash and securities. 

The Market Repo enhancements will provide significant operational efficiencies via ability to send settlement instructions for 1st and 2nd leg of repo trade simultaneously and elect for the 2nd leg to be automatically unwound, reducing the need for manual tasks.  

Further details  

Participants are also reminded of the mandatory requirement for all Market Repo transactions to be settled as Market Repo transactions in Austraclear by 22nd November 2021. 

Further details