Fear! Interest Rate Derivatives Trading Explodes to $6.5 Trillion Per Day

Brexit, slowing global growth, Central Bank monetary follicies (negative rates). Lots of economic uncertainty and a growing demand to hedge interest rates. In other words, lots of fear.

According to the BIS, daily turnover of OTC interest rate derivatives averaged $6.5 trillion in April 2019, up markedly from the April 2016 survey when it averaged $2.7 trillion per day. This rise appears to have been driven mainly by increased hedging and positioning amid shifting prospects for growth and monetary policy.

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However, other factors also played a role. Much of the turnover in April 2019 was in shorter-term contracts, which are rolled over more often. In addition, the 2019 survey saw more comprehensive reporting of related party trades than in previous surveys. Average daily turnover in April 2019, after adjusting for these trades, is estimated to have been closer to $5.8 trillion in April 2019, up around 120% since the 2016 survey.

The majority of turnover of OTC interest rate derivatives is in swaps and denominated in the mighty US dollar.

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The home of the largest turnover (aka, trading) is in the UK, followed by Hong Kong and then the USA.

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Yes, lots of fear regarding interest rates.

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