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

Author

Listed:
  • Torsten Ehlers
  • Karamfil Todorov

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.

Suggested Citation

  • Torsten Ehlers & Karamfil Todorov, 2025. "Goodbye Libor, hello basis traders: unpacking the surge in global interest rate derivatives turnover," BIS Quarterly Review, Bank for International Settlements, December.
    • Handle: RePEc:bis:bisqtr:2512c
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    References listed on IDEAS

    as
    1. Andreas Schrimpf & Hyun Song Shin & Vladyslav Sushko, 2020. "Leverage and margin spirals in fixed income markets during the Covid-19 crisis," BIS Bulletins 2, Bank for International Settlements.
    2. Wenqian Huang & Ingomar Krohn & Vladyslav Sushko, 2025. "Global FX markets when hedging takes centre stage," BIS Quarterly Review, Bank for International Settlements, December.
    3. Daniel Barth & Jay Kahn, 2020. "Basis Trades and Treasury Market Illiquidity," Briefs 20-01, Office of Financial Research, US Department of the Treasury.
    4. Torsten Ehlers & Frank Packer, 2013. "FX and derivatives markets in emerging economies and the internationalisation of their currencies," BIS Quarterly Review, Bank for International Settlements, December.
    5. Torsten Ehlers & Bryan Hardy, 2019. "The evolution of OTC interest rate derivatives markets," BIS Quarterly Review, Bank for International Settlements, December.
    6. Wenqian Huang & Karamfil Todorov, 2022. "The post-Libor world: a global view from the BIS derivatives statistics," BIS Quarterly Review, Bank for International Settlements, December.
    7. Andreas Schrimpf & Vladyslav Sushko, 2019. "Beyond LIBOR: a primer on the new benchmark rates," BIS Quarterly Review, Bank for International Settlements, March.
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    Cited by:

    1. Stefan Avdjiev & Patrick McGuire & Goetz von Peter, 2025. "International finance through the lens of BIS statistics: derivatives markets," BIS Quarterly Review, Bank for International Settlements, December.
    2. Wenqian Huang & Ingomar Krohn & Vladyslav Sushko, 2025. "Global FX markets when hedging takes centre stage," BIS Quarterly Review, Bank for International Settlements, December.

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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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