Derivatives Market Analysis: Interest Rate Derivatives

Twice a year, ISDA analyzes interest rate derivatives notional outstanding data reported by the Bank for International Settlements (BIS) in order to illuminate market trends. The bank’s most recent analysis was released in November 2016.

This publicly reported data does not describe several notable aspects of the derivatives market. For example, risk metrics associated with derivatives cannot be conveyed through notional figures.

Additionally, the effects of clearing and compression skew BIS totals. Clearing acts to increase reported notional outstanding, as a single bilateral transaction is counted as two cleared trades once novated to a central counterparty (CCP). In contrast, compression reduces notional outstanding, which can make it seem like fewer trades are taking place.

This report addresses the effects of clearing and compression on interest rate derivatives by adjusting reported notionals in order to provide a clearer estimate of derivative market trends.

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