Executive Summary
SIFMA Research Quarterly – 3Q19 US Fixed Income Markets
December 2019
US Fixed Income Page | 1 Executive Summary
Contents
Executive Summary ...... 4 Quarterly Performance ...... 5 Chart Book: Total Fixed Income ...... 6 Chart Book: US Treasuires (UST) ...... 7 Chart Book: Mortgage-Backed Securities (MBS) ...... 9 Chart Book: Corporate Bonds (Corporates) ...... 10 Chart Book: Municipal Securities (Munis) ...... 12 Chart Book: Federal Agency Securities (Agency) ...... 14 Chart Book: Asset-Backed Securities (ABS) ...... 15 Chart Book: Money Markets (MM) ...... 16 Chart Book: Repurchase Agreements (Repo) ...... 17 Chart Book: Secured Overnight Financing Rate (SOFR) ...... 20 Appendix: Terms to Know ...... 21 Authors ...... 22
US Fixed Income Page | 2 Executive Summary
Associated Reports
Please also see SIFMA Research Quarterly Report: US Cash Equities, ETFs, Multi-Listed Options and Capital Formation, which can be found at: https://www.sifma.org/research SIFMA Insights Primers: The SIFMA Insights primer series is a reference tool that goes beyond a typical 101 series. By
illustrating important technical and regulatory nuances, SIFMA Insights primers provide a fundamental understanding of the marketplace and set the scene to address complex issues arising in today’s markets. The SIFMA Insights market structure
primer series includes: global capital markets & financial institutions; U.S. fixed income markets; U.S. equity markets; U.S. multi- listed options markets; U.S. ETF markets; and U.S. capital formation and listings exchanges. The primers and other Insights
reports can be found at: https://www.sifma.org/primers
SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate on legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.
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US Fixed Income Page | 3 Executive Summary
Executive Summary
The U.S. fixed income markets are the largest in the world, comprising 40.2% of the $103 trillion securities outstanding across the globe, or $41 trillion (as of FY18). This is 1.9x the next largest market, the EU (excluding the U.K.). U.S. market share has averaged 39.5% over the last 10 years, troughing at 37.4% in 2011 and peaking at 41.8% in 2015.
US Market Share – YTD
Global FI Outstanding Australia HK Singapore 0.4% 2% 1% Other DM Canada EM 0.4% 3% 2% UK 6%
Japan US 12% 40%
China 13%
EU27 21%
US Market Share – Historical Trends
US Share of Global FI Markets ($T) World US 120 101 103 92 100 90 90 88 89 85 88 81 80
60 38 40 41 35 36 37 40 31 32 33 34
20
0 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Source: Bank for International Settlements (2018)
US Fixed Income Page | 4 Executive Summary
Quarterly Performance
In this report, we recap statistics for total U.S. fixed income markets, U.S. Treasuries (UST), mortgage-backed securities (MBS), corporate bonds (corporates), municipal securities (munis), federal agency securities (agency), asset-backed securities (ABS), money markets (MM), repurchase agreements (repos) and secured overnight financing rate (SOFR).
Quarterly Highlights
3Q19 3Q18 Y/Y YTD19 YTD18 Y/Y 2018 2017 Y/Y Issua nce ($B) UST 876 655 33.8% 2,180 1,897 14.9% 2,685 2,224 20.7% MBS 610 519 17.4% 1,432 1,446 -1.0% 1,899 1,935 -1.9% Corporates 406 323 25.6% 1,142 1,111 2.7% 1,369 1,680 -18.5% Muni 105 142 -25.7% 278 253 9.9% 346 449 -23.0% Agency 284 5,334 -94.7% 729 498 46.4% 654 731 -10.6% ABS 75 129 -42.0% 249 409 -39.1% 517 550 -6.1%
3Q19 3Q18 Y/Y YTD19 YTD18 Y/Y 2018 2017 Y/Y Trading (ADV, $B) UST 605 493 22.8% 604 535 13.0% 548 505 8.4% MBS 255 209 22.0% 254 223 13.9% 221 212 4.7% Corporates 33 29 12.8% 36 33 9.9% 33 32 2.3% Muni 10.9 11.4 -4.7% 11.7 11.6 1.4% 11.6 10.8 7.9% Agency 4.2 3.5 22.1% 4.1 3.4 22.1% 3.4 4.1 -16.6%
ABS 1.3 1.2 12.7% 1.6 1.5 5.6% 1.4 1.4 0.2%
2Q19 2Q18 Y/Y 2018 2017 Y/Y Outstanding ($B) UST 15,922 14,972 6.3% 15,608 14,469 7.9% MBS* 9,817 9,484 3.5% 9,732 9,305 4.6% Corporates 9,467 9,102 4.0% 9,229 9,013 2.4% Muni 3,547 3,866 -8.3% 3,688 3,659 0.8% Agency 1,869 1,900 -1.6% 1,842 1,935 -4.8% ABS* 1,561 1,528 2.2% 1,616 1,458 10.8% MM 1,090 1,052 3.7% 996.0 965.9 3.1%
Sources: Bloomberg, Dealogic, Federal Reserve, Refinitiv, US Treasury, US Agencies, SIFMA estimates Note: Outstanding data for ABS and MBS as of 1Q19, the latest data available at the time of publication
US Fixed Income Page | 5 Chart Book: Total Fixed Income
Chart Book: Total Fixed Income
In general, fixed income securities are borrowed capital for the issuer to fund government operations, public projects or corporate investments, thereby fueling economic growth. The diversity of fixed income products both increases the amount of funds available to borrow and spreads credit risk across multiple market participants.
US FI Outstanding US FI Outstanding ($T) ABS MM 50 UST MBS Corporates Munis Agency ABS MM 2.5% 3.6% 42.7 43.3 Agency 45 39.6 40.8 4.2% 38.3 40 37.3 35 Munis 8.4% UST 30 36.9% 25 20 Corporates 21.7% 15 10 5 MBS 22.7% 0 FY14 FY15 FY16 FY17 FY18 2Q19
US FI Issuance US FI Issuance ($T) ABS UST MBS Corp Muni Agency ABS 4.1% Agency 8 7.5 7.6 7.5 12.1% 6.8 7 6.4 6.0 Muni 6 4.6% UST 5 36.3% 4
3 Corporates 19.0% 2
1 MBS 23.8% 0 FY14 FY15 FY16 FY17 FY18 YTD
US FI Trading US FI Trading, ADV ($B) Muni Agency ABS UST MBS Corp Muni Agency ABS Corporates 0.5% 0.2% 1,000 4.0% 1.3% 912 818 779 765 800 729 728
600 MBS 27.9% 400
UST 66.2% 200
0 FY14 FY15 FY16 FY17 FY18 YTD Sources: Bloomberg, Dealogic, Federal Reserve, Refinitiv, US Treasury, US Agencies, SIFMA estimates (MBS/ABS outstanding 1Q19, YTD Sept 2019)
US Fixed Income Page | 6 Chart Book: US Treasuires (UST)
Chart Book: US Treasuires (UST)
U.S. Treasury securities (UST) are debt obligations of the federal government used to fund operations. Since UST are backed by the full faith and credit of the U.S. government, these securities are considered by market participants as the benchmark credit. The U.S. government has a AAA rating, meaning it has essentially no credit risk and can easily meet its financial obligations on time and in full. In light of this, UST show a diversity of holders, in both institutional type and foreign holders.
UST Outstanding UST Outstanding ($B) Bills Notes Bonds TIPS FRN 18,000 FRN 16,339 2.6% 15,608 16,000 14,469 13,908 13,192 TIPS 14,000 12,505 8.9% 12,000
Bonds 10,000 14.2% 8,000 6,000 Bills Notes 14.5% 59.8% 4,000 2,000 0 FY14 FY15 FY16 FY17 FY18 YTD UST Issuance UST Issuance ($B) Bills Notes Bonds TIPS FRN FRN TIPS Bonds 12,000 1.9% 1.3% 2.0% 10,491 10,000 8,787 8,910 8,301 8,000 Notes 7,030 7,017 19.3% 6,000
4,000
Bills 2,000 75.5% 0 FY14 FY15 FY16 FY17 FY18 YTD
Sources: US Treasury, New York Federal Reserve, Federal Reserve, SIFMA estimates (YTD = Sept 2019)
US Fixed Income Page | 7 Chart Book: US Treasuires (UST)
UST Trading, ADV UST Trading, ADV ($B) Bills Coupons TIPS FRN FRN 700 TIPS 0.6% 604 3.0% 600 548 519 505 490 505 500 Bills 21.7% 400
300
200 Coupons 74.7% 100
0 FY14 FY15 FY16 FY17 FY18 YTD
40% 37.6% UST Holders - Institutions 35% UST Holders - T10 Countries 33.2%
35% 30%
30% 25% 25% 20% 16.9%16.3% 20% 15% 14.5% 15% 12.9% 11.7% 11.2% 10% 5.1% 10% 4.4% 4.0% 3.7% 5.1% 5% 3.5% 3.4% 3.3% 3.2% 2.8% 3.4% 5% 2.0% 1.6% 0% 0% UK HK India Brazil Other China Japan MFs Ireland Other Belgium Banks Foreign Cayman Is S/L Govt S/L Pensions Switzerland MonAuth Insurance Luxembourg Individuals
US Treasury Interest Rates (%) Federal Funds Rate (%) Spread 2-Year 10-Year Target Range Effective Rate 2.40 2.5 3.5 2.22 2.20 3.04 3.0 2.77 2.75 2.0 1.74 2.50 2.45 2.34 2.24 2.5 2.22 2.80 1.97 1.92 1.80 1.5 1.20 2.0 1.56 2.16 2.13 0.95 1.5 1.68 1.0 1.36 1.0 1.24 0.37 0.45 0.5 0.84 0.07 0.10 0.14 0.5 0.69 0.73 0.51 0.60 0.0 0.37 0.0 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 Sources: US Treasury, New York Federal Reserve, Federal Reserve, SIFMA estimates (YTD = Sept 2019)
US Fixed Income Page | 8 Chart Book: Mortgage-Backed Securities (MBS)
Chart Book: Mortgage-Backed Securities (MBS)
Since mortgages (a debt instrument collateralized by a specified real estate property) are less liquid than other investment vehicles, they can be securitized into mortgage-backed securities (MBS), whether in pass-throughs or collateralized mortgage obligations (CMOs).
US MBS Outstanding US MBS Outstanding ($B) Agency MBS Agency CMO Non-Agency 12,000
9,732 9,817 10,000 9,305 8,895 9,023 Agency 8,842 CMO 11.3% 8,000 Non- Agency 6,000 14.1%
4,000 Agency MBS 2,000 74.6% 0 FY14 FY15 FY16 FY17 FY18 1Q19 US MBS Issuance US MBS Issuance ($B) Agency MBS Agency CMO Non-Agency Non- Agency 2,500 5.8% 2,044 1,935 1,906 2,000 1,801 Agency 1,440 1,432 CMO 1,500 13.7%
1,000
Agency 500 MBS 80.5% 0 FY14 FY15 FY16 FY17 FY18 YTD US MBS Trading, ADV US MBS Trading, ADV ($B) Agency Non-Agency Non- 300 Agency 254 1.2% 221 212 212 195 200 182
100
Agency 98.8% 0 FY14 FY15 FY16 FY17 FY18 YTD Sources: Bloomberg, US Agencies, FINRA, SIFMA estimates (YTD = Sept 2019)
US Fixed Income Markets Page | 9 Chart Book: Corporate Bonds (Corporates)
Chart Book: Corporate Bonds (Corporates)
Corporate bonds (corporates) are debt securities issued by public and private corporations. They are issued to raise money to fund investments or expansion plans. Corporates are considered riskier than UST, and receive ratings by credit ratings agencies to determine creditworthiness, i.e. probability of repayment of debt in a timely manner.
US Corporate Outstanding ($B)
10,000
9,467 9,500 9,229 9,013 9,000 8,696
8,500 8,293 8,044 8,000
7,500
7,000 FY14 FY15 FY16 FY17 FY18 2Q19
US Corporate Issuance US Corporate Issuance ($B) IG HY Private Placement Convertibles Private Placement Convertibles 2,000 6.6% 0.1% 1,680 1,550 1,476 1,515 1,500 1,369 HY 1,143 16.9% 1,000
500 IG 76.5% 0 FY14 FY15 FY16 FY17 FY18 YTD US Corporate Trading, ADV US Corporate Trading, ADV ($B) IG HY Private Placement Convertible Convertibles 40 3.9% 36.3 35 32.5 30.7 31.8 30 27.8 25.9 HY 25 20.2% 20
IG 15 55.1% Private 10 Placement 20.8% 5
0 FY14 FY15 FY16 FY17 FY18 YTD Sources: Refinitiv, Federal Reserve, SIFMA estimates (YTD = Sept 2019)
US Fixed Income Markets Page | 10 Chart Book: Corporate Bonds (Corporates)
US Corporate Issuance US Corporate Bond Defaults 40% 36.9% 35% 120 105 30% 100 25% 20% 14.8% 15.1% 80 15% 66 64 10% 7.8% 7.8% 7.0% 60 53 5.5% 5.2% 44 5% 40 32 0%
20 Other Energy Staples Financials Industrials Consumer Healthcare 0 Technology
Entertainment FY14 FY15 FY16 FY17 FY18 YTD
US Corporates Average Maturity at Issuance (# Years) US Corporate Bond Index Yield to Maturity (%) Spread IG HY 17.5 10 17.0 16.9 17.0 8.9 17.0 9 8.0 8 16.5 6.9 6.7 6.5 6.4 7 6.2 6.0 16.0 6 15.5 15.3 15.5 5 4.1 4.3 3.7 3.4 15.0 14.7 4 3.2 3.2 3.2 3.0 3 14.5 2 14.0 1 13.5 0 FY14 FY15 FY16 FY17 FY18 YTD 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19
Source: Refinitiv, Federal Reserve, FINRA, S&P Global Ratings, SIFMA estimates (YTD = Sept 2019)
US Fixed Income Markets Page | 11 Chart Book: Municipal Securities (Munis)
Chart Book: Municipal Securities (Munis)
Municipal bonds (munis) are debt securities issued by state/local governments or government agencies and public entities (utilities, school districts) to fund public projects, predominantly infrastructure related. Efficient muni markets enable states and municipalities to borrow at low rates and finance capital expenditures over a longer time period.
US Municipal Outstanding ($B)
3,750 3,724
3,700 3,688 3,659 3,650 3,607 3,592 3,600
3,547 3,550
3,500
3,450 FY14 FY15 FY16 FY17 FY18 2Q19 US Municipal Issuance US Municipal Issuance ($B) Revenue GO Private Placement Private Placement 500 3.8% 452 449 405 400 339 346
300 278
GO 42.1% 200 Revenue 54.0% 100
0 FY14 FY15 FY16 FY17 FY18 YTD
US Municipal Trading, ADV US Municipal Trading, ADV ($B) Revenue GO Other Other 14 7.7% 11.6 11.7 12 11.1 10.8 9.9 10 8.6
8 GO 26.8% 6
Revenue 4 65.5% 2
0 FY14 FY15 FY16 FY17 FY18 YTD Source: Refinitiv, Federal Reserve, SIFMA estimates (YTD = Sept 2019)
US Fixed Income Markets Page | 12 Chart Book: Municipal Securities (Munis)
US Municipal Issuance US Municipal Holders 50% 46.5% 30% 27.7% 25.7% 45% 25% 40% 20% 35% 15.7% 30% 25.5% 15% 25% 9.9% 10% 7.9% 20% 5.9% 4.6% 15% 12.3% 12.1% 5% 2.6% 10% 3.6% 0% 5% 0% Other Power Utilities General MFs Housing Other Education Banks Healthcare Insurance Transportation Individuals
US Municipal Average Maturity at Issuance (# Years) US Municipal Bond Index Yield to Maturity (%)
18.5 4.0 18.1 18.1 3.6 3.5 3.4 3.5 3.2 18.0 3.1 2.8 2.9 17.5 3.0 17.5 2.5
17.0 16.8 2.0
16.4 1.5 16.5 16.0 1.0 16.0 0.5
15.5 0.0 FY14 FY15 FY16 FY17 FY18 YTD 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19
Source: Refinitiv, Bloomberg, Municipal Securities Rulemaking Board, SIFMA estimates (YTD = Sept 2019)
US Fixed Income Markets Page | 13 Chart Book: Federal Agency Securities (Agency)
Chart Book: Federal Agency Securities (Agency)
Agency securities are issued by quasi-governmental agencies (federal government, government sponsored enterprises) to fund operations. Unlike UST or munis, these securities are not always fully guaranteed by the U.S. or a municipal government. As such, they can hold credit and default risk.
US Agency Outstanding US Agency Outstanding ($B) FNMA FHLMC FHLB Farm Credit Farmer Mac TVA Farmer Mac TVA 2,250 1.0% 2,029 1.2% 1,995 1,972 1,935 2,000 1,842 1,830 1,750 FHLB 11.7% 1,500
Farm 1,250 Credit 1,000 15.4% FNMA 750 55.2% 500 FHLMC 15.5% 250 0 FY14 FY15 FY16 FY17 FY18 YTD US Agency Issuance US Agency Issuance ($B) FNMA FHLMC FHLB Farm Credit Farmer Mac TVA Farmer Mac FNMA 1,000 928 2.5% 1.0%
800 731 729 Farm 645 654 Credit 559 14.9% 600
400 FHLMC 20.8% FHLB 60.8% 200
0 FY14 FY15 FY16 FY17 FY18 YTD US Agency Trading, ADV US Agency Trading, ADV ($B) FNMA FHLMC FHLB Other 6 5.3 5.4
5 4.5 FNMA 4.1 4.1 13% 4 3.4
FHLB 3 FHLMC 41% 18% 2
1 Other 29% 0 FY14 FY15 FY16 FY17 FY18 YTD Source: US Agencies, FINRA, SIFMA estimates (YTD = Sept 2019)
US Fixed Income Markets Page | 14 Chart Book: Asset-Backed Securities (ABS)
Chart Book: Asset-Backed Securities (ABS)
An asset-backed security (ABS) is a financial security collateralized by a pool of typically illiquid assets such as auto loans, student loans, credit cards, etc. Pooling these assets creates a more liquid investment vehicle, with a valuation based on the cash flows of the underlying and the structure of the transaction.
US ABS Outstanding US ABS Outstanding ($B) Auto CDO/CLO CC Equipment Other Student Loans Equipment 1,800 4.0% 1,616 1,561 1,600 1,458 1,349 1,377 1,392 Student CC 1,400 7.6% Loans 1,200 10.6% 1,000
CDO/CL 800 Other O 600 13.3% 49.7% 400
Auto 200 14.7% 0 FY14 FY15 FY16 FY17 FY18 1Q19
US ABS Issuance US ABS Issuance ($B) Auto CDO/CLO CC Equipment Other Student Loans Student Loans 600 Equipment 4.9% 550 7.3% 517
393 400 CC 333 325 7.4% Auto 36.9% 249 Other 15.3% 200
CDO/CLO 28.0% 0 FY14 FY15 FY16 FY17 FY18 YTD US ABS Trading, ADV US ABS Trading, ADV ($B) ABS CDO 1.8 1.6 1.5 1.6 1.4 1.4 1.4 1.3 1.4
1.2 CDO 28.1% 1.0
0.8
0.6
0.4 ABS 71.9% 0.2
0.0 FY14 FY15 FY16 FY17 FY18 YTD Source: Refinitiv, Bloomberg, FINRA, SIFMA estimates (YTD = Sept 2019)
US Fixed Income Markets Page | 15 Chart Book: Money Markets (MM)
Chart Book: Money Markets (MM)
The money markets (MM) involve highly liquid, short maturity (typically overnight to less than one year) financial instruments (certificates of deposit/CDs, bankers acceptances, commercial paper/CP, etc.), used by investors to borrow and lend in the short term. Transactions in the money markets are wholesale, taking place only between institutional investors (no individual investors) and for large denominations.
US Money Markets Outstanding ($B)
1,200 1,090 966 996 1,000 930 941 885
800
600
400
200
0 FY14 FY15 FY16 FY17 FY18 2Q19
US CP Outstanding US Commercial Paper Outstanding Non-Financial Financial ABCP Other 1,200 1,090 966 996 1,000 930 941 885
ABCP 800 22.2%
600 Financial 49.3% 400 Non- Financial 200 28.5%
0 FY14 FY15 FY16 FY17 FY18 2Q'19
Source: Federal Reserve, SIFMA estimates
US Fixed Income Markets Page | 16 Chart Book: Repurchase Agreements (Repo)
Chart Book: Repurchase Agreements (Repo)
A repurchase agreement (repo) is a financial transaction in which one party sells an asset to another party with a promise to repurchase the asset at a pre-specified later date (a reverse repo is the same transaction seen from the perspective of the security buyer). Repos can be overnight (duration one day) or term (duration up to one year, albeit some are up to two years and the majority are three months or less). The repo market enables market participants to provide collateralized loans to one another, and financial institutions predominantly use repos to manage short-term fluctuations in cash holdings, rather than general balance sheet funding. Repos aid secondary market liquidity for the cash markets (ex: UST), allowing dealers to act as market makers in a very efficient manner.
Bilateral Repo
Bilateral Repo - Avg Daily Out Bilateral Repo - Avg Daily Outstanding ($T) Repo Reverse Repo 5.0 4.4 4.5 4.2 4.0 4.0 4.0 3.9 4.0 3.5 Reverse Repo 3.0 44.0% 2.5 Repo 56.0% 2.0 1.5 1.0 0.5 0.0 FY14 FY15 FY16 FY17 FY18 YTD
Collateral - Repo Collateral - Reverse Repo
Equities Other Agency Other Corporate ABS Agency Corporate 2.1% 1.7% 1.0% ABS 0.7% 0.0% 1.2% 0.5% 2.5% 0.7% Equities TIPS TIPS 0.5% 8.2% 6.1%
MBS 12.1% MBS 17.9%
UST 68.0% UST 76.7%
Source: Federal Reserve Bank of New York, SIFMA estimates (YTD = Sept 2019)
US Fixed Income Markets Page | 17 Chart Book: Repurchase Agreements (Repo)
Avg Daily Out - Repo Average Daily Outstanding - Repo ($T) Overnight Term 3.0
2.41 2.45 2.5 Term 2.21 2.20 2.24 2.19 28.7% 2.0
1.5
Overnight 1.0 71.3% 0.5
0.0 FY14 FY15 FY16 FY17 FY18 YTD
Avg Daily Out - Reverse Repo Average Daily Outstanding - Reverse Repo ($T) Overnight Term 2.5
1.93 2.0 1.84 1.81 1.77 1.76 1.69 Term 1.5 45.8%
Overnight 1.0 54.2%
0.5
0.0 FY14 FY15 FY16 FY17 FY18 YTD
Source: Federal Reserve Bank of New York, SIFMA estimates (YTD = Sept 2019
US Fixed Income Markets Page | 18 Chart Book: Repurchase Agreements (Repo)
GCF Repo
GCF Repo Total Par Amount GCF Repo Total Par Amount ($T) MBS UST Agency 60 55.2 50.4 50 46.1
40 33.3 UST 30.8 36.1% 30 26.3
20 MBS 63.9% 10
0 FY14 FY15 FY16 FY17 FY18 YTD
GCF Repo Avg Par Amount GCF Repo Average Daily Par Amount ($B) MBS UST Agency 250 221 202 200 187
UST 150 134 140 36.1% 123
100
MBS 63.9% 50
0 FY14 FY15 FY16 FY17 FY18 YTD
Tri-Party Repo by Collateral Tri-Party Repo Cash Investor Median Margin Non-Agency Other ABS (Non-IG) 10.0% ABS & MBS 1.5% Agency Corporates 2.9% Securities Corporates (Non-IG) 8.0% 3.8% 1.4% CMO Private Label (Non-IG) 8.0% Equities 8.0% Equities CMO Private Label (IG) 7.0% 5.0% ABS (IG) 7.0% Municipality Debt 7.0% Money Market 5.0% International Securities 5.0% UST Agency Corporates (IG) 5.0% 52.1% MBS & Agency CMOs 3.9% CMOs UST Strips 2.0% 33.4% UST excl Strips 2.0% Agency MBS 2.0% Agency Debentures & Strips 2.0% 0% 2% 4% 6% 8% 10% 12%
Source: Federal Reserve Bank of New York, The Depository Trust & Clearing Corporation, SIFMA estimates (YTD = Sept 2019)
US Fixed Income Markets Page | 19 Chart Book: Secured Overnight Financing Rate (SOFR)
Chart Book: Secured Overnight Financing Rate (SOFR)
In the U.S., the transition away from London Interbank Offered Rate (LIBOR) to its chosen alternative reference rate, Secured Overnight Financing Rate (SOFR), is underway. While LIBOR is not fully transaction based, SOFR is based on the overnight repo markets with ~ $1 trillion of transactions per day. Publication of the SOFR rate began in April 2018. Trading and clearing of SOFR based swaps and futures began in May 2018.
Historical SOFR Volumes & Rate Volume ($B) Rate (bps, RHS) 250 1,200
200 1,000
800 150
600 100 400
50 200
0 0 3/30/15 6/30/15 9/30/15 3/31/16 6/30/16 9/30/16 3/31/17 6/30/17 9/30/17 3/31/18 6/30/18 9/30/18 3/31/19 6/30/19 9/30/19 12/30/14 12/31/15 12/31/16 12/31/17 12/31/18
SOFR Linked Product Growth Since May 2018 Inception ($B)
7,000 Futures Volume Swaps NO Cash NO Agg NO (RHS) 30,000 26,457 6,000 25,000 20,783 5,000 17,231 20,000 4,000 13,797 15,000 3,000 11,594 9,134 7,667 10,000 2,000 5,539 4,095 3,155 5,000 1,000 2,071 946 1,258 97 199 406 722 0 0 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Source: The Alternative Reference Rates Committee, Federal Reserve Bank of New York, SIFMA estimates Note: SOFR rate = 90 day rolling average
US Fixed Income Markets Page | 20 Appendix: Terms to Know
Appendix: Terms to Know
Y/Y Year-over-Year UST U.S. Treasury Securities Q/Q Quarter-over-Quarter MBS Mortgage-Backed Security YTD Year-to-Date Corporates Corporate Bonds BPS Basis Points Munis Municipal Securities PPS Percentage Points Agency Federal Agency Securities CAGR Compound Annual Growth Rate ABS Asset-Backed Securities CUSIP Committee on Uniform Securities Identification Procedures MM Money Markets
CFTC Commodity Futures Trading Commission FRN Floating Rate Note SEC Securities and Exchange Commission FRA Forward Rate Agreement Fed Federal Reserve System T-Bill U.S. Treasury Bill FRB Federal Reserve Bank T-Note U.S. Treasury Note NY Fed Federal Reserve Bank of New York T-Bond U.S. Treasury Bond ARRC Alternative Reference Rates Committee TIPS Treasury Inflation Protected Securities
ADV Average Daily Trading Volume ABS Asset-Backed Security Algo Algorithm (algorithmic trading) CMO Collateralized Mortgage Obligation AT Automated Trading MBS Mortgage-Backed Security ATS Alternative Trading System CMBS Commercial MBS AUM Assets Under Management RMBS Residential MBS Best Ex Best Execution CLOB Central Limit Order Book HY High Yield Bond D2C Dealer-to-Client IG Investment Grade Bond D2D Dealer-to-Dealer ECN Electronic Communications Network GO General Obligation Bond ETP Electronic Trading Platforms Revenue Revenue Bond ETD Exchange Traded Derivative FI Fixed Income CD Certificate of Deposit FICC Fixed Income, Currencies and Commodities CDO Collateralized Debt Obligation GCF General Collateral Financing CLO Collateralized Loan Obligation IDB Inter-Dealer Broker CP Commercial Paper IIV Intraday Indicative Value ABCP Asset-Backed Commercial Paper IOI Indication of Interest MMF Money Market Mutual Funds MM Market Maker OI Open Interest FAMC Farmer Mac/Federal Agricultural Mortgage Corporation OTC Over-the-Counter FCS Farm Credit System VWAP Volume Weighted Average Price FHLB Federal Home Loan Banks FHLMC Freddie Mac/Federal Home Loan Mortgage Corporation IBOR Interbank Offered Rate FNMA Fannie Mae/Federal National Mortgage Association LIBOR London Inter-bank Offered Rate GNMA Ginnie Mae/Government National Mortgage Association RFR Risk Free Rate TVA Tennessee Valley Authority SOFR Secured Overnight Financing Rate DV01 Dollar Value of Basis Point IR Interest Rate DVP Delivery-versus-Payment IRS Interest Rate Swap EFFR Effective Fed Funds Rate OIS Overnight Index Swap PAI Price Alignment Interest TRS Total Return Swap Repo Repurchase Agreement STIR Short-Term Interest Rate
US Fixed Income Markets Page | 21 Authors
Authors
SIFMA Research Katie Kolchin, CFA Justyna Podziemska Ali Mostafa [email protected]
US Fixed Income Markets Page | 22