Economic sentiment was mixed in July amid what remains a challenging environment. Markets continue to be rattled by concerns over generation-high inflation and the ongoing war in Ukraine. In response, central banks continued to raise interest rates at an accelerated rate. The European Central Bank (ECB) raised interest rates by half a percentage point, the first raise in over a decade, ending a prolonged period of negative rates. In a move anticipated by markets, the Bank of England (BoE) also increased borrowing cost by half a percentage point in attempt to combat spiraling inflation even as they predict the UK economy may be heading for a recession.
Even as we entered the summer months, the return of rate cycles in the UK and the Eurozone was supportive of volumes in the Fixed income complex; markets saw heightened volatility which bolstered performance in STIRs.
Momentum observed in Euribor over recent months continued; July average daily volume (ADV) in futures was 1,277,800 contracts, +58% YoY and 299,200 for options, four times the level observed over the same period a year ago. Open interest (OI) in the Euribor complex is expanding driven by consistently strong performance in options. Euribor finished June at OI of 4.72 million futures and 14.11 million options, +13% and +100% YoY. Combined OI in the Euribor complex is now trending at levels last seen almost 10 years ago.
Fixed income finished May with ADV of 1.90 million contracts, +17% YoY. OI in the complex was 23.93 million contracts, +16% YoY.