Derivatives trading on the Sterling Overnight Index Average (SONIA) reached a new height of 1.37 million futures and options contracts on May 24, International Exchange (ICE) said on Friday. SONIA is a benchmark interest rate for short-term unsecured lending in the United Kingdom.
The new record beats a previous peak of 1.147 million SONIA futures and options contracts traded on February 2, 2023.
UK Investors Count on Higher Rates
ICE, a global exchange and clearing house operator, explained that the new peak performance builds on adjustments made by investors who have adjusted their exposure to the benchmark “for the potential of higher interest rates to continue for longer in the UK.” The change in exposure is a reaction to the latest UK inflation data which made investors review their expectations for interest rate changes.
“On May 24, 2023, over 1 million SONIA futures traded, with high levels of activity in the June, September and December 2023 SONIA contract months,” ICE explained. “Open interest across SONIA futures and options is 2.6 million contracts, up 28% since the start of the year, with open interest out to December 2028.”
SONIA Trading Outpaces February High
The previous record trading in SONIA futures and options achieved on February 2 was driven by investors’ return to the UK markets. It “reflects a return of confidence by investors to UK interest rate markets following the impact of the mini-budget in 2022,” ICE explained.
Under the old record, ICE posted a record 979,561 SONIA futures contracts, which was a 19% increase from the prior record.
“As the benchmark for pricing and risk managing UK interest rate risk, SONIA futures and options markets are benefiting from the measures taken last year to bolster liquidity,” Chris Rhodes, the President of ICE Futures Europe, previously explained. “The record volumes, together with the growth in Euribor volumes over the past year, are creating an exciting European rates environment for traders.”
Meanwhile, options and futures trading on the Euro Interbank Offer Rate (Euribor) recently hit a 10-year peak with a record 49.5 million contracts traded in March 2023. Euribor is the reference rate used by banks in the eurozone to offer short-term euro-denominated loans at the interbank market.
