Short-dated sterling swap volumes surge

On April 22, traded volumes were four times the two-year average

Trading in sterling-denominated interest rate swaps erupted on April 22, with £60.9 billion ($75.7 billion) of notionals changing hands – the most in at least two years.

Data from the Depository Trust & Clearing Corporation (DTCC) shows last Wednesday’s trading of fixed-to-floating Libor instruments was over four times the daily average. Of the April 22 trades, 88% were for contracts maturing in one year or less, compared to a daily average of 22% since the start of 2018.

In spite of this bumper trading day, the week to April 24 as a whole was only the twelfth busiest in two years, with volumes hitting £103.6 billion. The top trading week over the last two years was that ending February 2, when £147.6 billion of notionals were exchanged.

 

What is it?

The DTCC swap data repository includes trades involving US-regulated counterparties, therefore excluding trades not involving US regulated firms. In some cases, trade notional amounts are capped, further underreporting the size of total trading.

Still, the repository reflects one of the best publicly-available insights into the swaps market and is referenced by traders and in industry reports.

Trades are date-stamped in coordinated universal time (UTC), equivalent to Greenwich Mean Time.

Why it matters

Of the £60.9 billion traded on April 22, £52.5 billion occurred between 14:16 and 15:11 UTC. This could point to the unwind of a jumbo swaps portfolio by a single large market participant. It would also explain why the rest of the week was fairly typical for April.

In early March, trading activity was elevated for a number of days as market participants adjusted to dramatic cuts to the Bank of England base rate. With this rate now at a rock-bottom 0.1%, and unlikely to move anywhere soon, it’s unlikely speculators will be diving in to make a quick profit or hedgers be looking to rearrange their portfolios en masse.

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