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New 5 Year Treasury Bond Future - 1 month to launch

Launching trade date 30 November 2020, the new 5 Year Treasury Bond Future will provide an additional liquidity point and hedging tool at the mid part of the curve, allowing for more efficient and effective risk management. 

Key Features

  • The contract will be cash settled against the average price of a basket of Treasury Bonds.  For details on the March 21 and June 21 Bond Baskets, click here
  • Spread functionality will be available for calendar and inter commodity spreads (against the 3 and 10 Year Bond Futures)
  • Prices will be quoted in multiples of 0.5 basis points (0.25 basis points during the period of the roll)
  • Face value of 100,000 and 2% coupon
  • Market makers will support pricing in the contract from day 1

Testing

The 5 Year Bond Future is available in the Customer Development Environment for testing under the code VT.  Information on contract specifications and vendor codes can be found in the 5 Year Bond Future factsheet.

 

Interest rate derivatives: OTC and Futures

Rates futures volumes for the period Q3 2020 reached 31.8 million contracts, an increase of 19% on the prior quarter. Activity at the front end of the yield curve continues to be impacted by the low rate environment and RBA Yield Curve Control with turnover in the 30 Day Interbank Cash Futures and 90 Day Bank Bill Futures down on the prior quarter (51% and 8% respectively). Turnover in 3 Year Bond Futures was up 18% when compared to Q2 2020 while Open Interest also finished the quarter higher at 1.18 million contracts vs 998k contracts as at 30 June 2020. Activity in the 10 Year Bond Futures was the standout, increasing by 28% when compared to Q2 2020 while Open Interest reached 1.53 million contracts, an increase of 24% on the prior quarter (1.23 million as at 30 June 2020).

For the month of September, 3 year Bond Futures EFP volumes reached 1.4m vs 983k monthly average while 10 year Bond Futures EFP volumes were 729k vs 609k monthly average. Elevated EFP volumes were primarily driven by increased issuance from the AOFM, with a new $25 billion September 2026 line driving the uplift in 3 year EFP activity. The AOFM have signaled that they do not intend to establish further lines for the remainder of the calendar year.  

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 has continued to perform well in this environment, with total notional cleared of A$1.825 trillion in Q3 2020, up 20% vs Q2 2020. Cleared notional outstanding at quarter end declined slightly down 3.5% vs end Q2 2020.

NZD OTC Clearing activity increased substantially during the quarter with NZ$50bn notional value cleared during Q3 2020 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.

View charts

A$1.825 trillion

Total notional cleared in Q3 2020

↑ 20%

in total notional cleared 

Q3 2020 vs Q2 2020

A$4,917 billion

Cleared notional outstanding

↓3.5%

in total cleared notional outstanding Sep 20 vs Jun 20

40%

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

Automated Futures vs OTC cross-margining 

 

 

Bond Futures roll tick change

The 3 and 10 Year Bond Futures minimum tick increments were successfully narrowed to 0.2bps and 0.1bps respectively for the September roll, delivering a material cost reduction for end users looking to roll their exposure. Key highlights include:

  • The roll was orderly with healthy levels of liquidity and participation throughout
  • The change delivered a minimum 60% reduction in bid offer roll costs for end users
  • 3 year roll activity was slightly down on the June expiry (3% lower) while 10 year roll activity was up 12% 
  • Bid offer volume at the top of book remained at levels that facilitated large orders and traded at the finest bid/offer highlighting that the tick changes did not negatively impact liquidity
  • Activity was more evenly distributed across the roll period

ASX will continue to closely monitor the effects of reduced tick size throughout the December 20 and March 21 rolls. 

 

Bank Bill Futures cash settlement

The first cash settlement of the Bank Bill Futures occurred in September with a total of 72,462 contracts taken to settlement. Increased liquidity throughout the expiry period highlights the benefits of a simplified cash settled process and associated risk reduction.

 

OTC Multilateral Compression - ASX completes testing with TriOptima and Participants

ASX held its first OTC Multilateral Compression member testing cycle with TriOptima and OTC Participants between 21-25 September, with terrific engagement from all parties who took part.  To help customers obtain the reduced capital costs and reduction in operational risk that can be achieved through Multilateral Compression, ASX will now work with TriOptima and OTC Participants on scheduling and readiness for the first live cycle. Learn more about OTC Clearing

 

Enhancements to transaction layer of the BBSW calculation methodology

ASX recently released a consultation paper (see Market Notice) inviting market participants to provide feedback on proposed changes to the transaction layer of the BBSW methodology. The objective being to increase the frequency which BBSW rates are formed under the transaction layer of the waterfall.

As a result of the consultation and subject to regulatory approval, ASX plans to implement the following changes in Q4, 2020.

  • Widen to maturity pool for the 2- to 6-month tenors from +/- 5 Business Days to +/- 10 Business Days and to introduce an asymmetric maturity pool for the 1-month tenor of +10/-5 Business Days.
  • Lower the volume threshold for the 1-, 3- and 6-month tenors from $200m to $100m
  • Introduce a weighted Least Squares Regression (LSR) methodology to complement the existing VWAP methodology
  • Progress to the NBBO layer of the calculation waterfall in specific circumstances

ASX Collateral Triparty and Australian Repo Markets September

ASX Collateral Triparty Repo users continue to gain efficiency, automation and scale benefits in times of volatility.   ASX Collateral balances reached a record high of $43.8bn in July 2020 and subsequently normalised in line with lower OMO, but is now in excess of 50% OMO market share. Continuing excess liquidity is resulting in low attendance at OMO auctions as RBA maintains their repo rate at 18bps.  Refer to charts

 

Watch the new ASX Collateral video explaining repo and the scale, automation and efficiency benefits of ASX Collateral triparty repo can bring to your business.  

Market Repo Update

The updated SWIFT two message market instruction for Market Repo module will be released on 23 November 2020 as part of Austraclear Service Release 10. Participants are encouraged to agree with their counterparts to instruct and settle as market repos using this module ahead of mandatory adoption by 22 November 2021.  See Market Repo Customer Update document for further information.

 

Austraclear 

Austraclear volume and turnover continued to reflect the increase in market trading and issuance activity. Volumes increased 7.6% in the September 2020 quarter on the back of continued AOFM and semi-government issuance. Turnover was up 13% on previous corresponding quarter.  Learn more about Austraclear.