Goodbye Libor, hello basis traders: unpacking the surge in global interest rate derivatives turnover

Torsten Ehlers and Karamfil Todorov

BIS Quarterly Review, 2025

Abstract: Structural and cyclical factors have driven a surge in turnover of interest rate derivatives (IRDs) since 2022 – both in over-the-counter (OTC) and exchange-traded (XTD) markets. The reform of benchmark rates and the shift away from Libor has fundamentally reshaped OTC markets, with overnight index swaps becoming the dominant instrument. In XTD markets, positions in government bond futures have risen dramatically, fuelled by hedge funds exploiting arbitrage opportunities through the cash-futures basis trade. Meanwhile, the sharp shifts in monetary policy since 2022 boosted turnover, especially for exchange-traded money market futures for major currencies. By contrast, growth in turnover for emerging market currencies was driven primarily by OTC contracts. Further market deepening may be held back by the complex geography of central clearing and the lack of markets for XTD government bond futures.

JEL-codes: E43 G12 G21 G23 (search for similar items in EconPapers)
Date: 2025
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