Sterling interest rate ETDs plummet 28% in Q2

Investors cut open interest in futures and options contracts as crises piled up

Notional for sterling-denominated exchange-traded interest rate derivatives dropped 28% in the second quarter, Bank for International Settlements (BIS) data shows, as the UK faced concurrent economic and political crises.

Open interest for futures and options contracts decreased from $7.6 trillion to $5.5 trillion – the lowest balance since Q4 2016 and the second-lowest since Q1 2015. On an annual basis, notionals were down 52% or $6.6 trillion.

 

 

The drop was particularly pronounced in sterling options, where open interest fell 33% quarter-on-quarter and 56% year-on-year, to $3.4 billion.

Notional for sterling futures tumbled 18% in the quarter and 45% for the year, to $2.1 trillion.

Open interest for all currencies was flat sequentially and up 8% annually, to $94.4 trillion, led by a sustained expansion of euro contracts.

What is it?

The BIS publishes exchange-traded derivatives data on a quarterly basis. The data is compiled from commercial data sources and captures the turnover and open interest of interest rate futures and options traded on exchanges.

Why it matters

The second quarter was a torrid period for the UK, with inflation accelerating faster than other major economies and Boris Johnson’s scandal-ridden premiership heading for downfall.

Political and economic uncertainty made sterling-asset unpopular, likely reducing demand for long positions and increasing it for short ones. An 8% quarter-on-quarter drop in the value of sterling against the dollar – the reporting currency for BIS statistics – is also to blame.

With Liz Truss’s new government undergoing a baptism by fire at the hands of global markets, and the Bank of England taking ever-more flak for failing to tame spiralling prices, the fall in demand for sterling instruments may have a way to go.

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