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Market value of OTC derivatives nears pre-Covid level –

The Bank for International Settlements (BIS) released OTC [over the counter] derivatives figures for the end-June 2021 period on Monday and reported that the gross market value of derivatives had neared pre-Covid levels.

The BIS said the notional value of outstanding derivatives rose from $582trn at end-December 2020 to $610trn at the end of June, an increase that appeared mainly driven by seasonal factors.

Meanwhile the gross market value of OTC derivatives, which provides a measure of risk, decreased by 20% to $12.6trn in the first half of this year, close to its end-2019 level. Moreover, gross credit exposure dropped by 19% to $2.7trn over the same period.

The BIS also highlighted that a decline in gross market value was broad-based. “It contracted by more than 20% in H1 2021 for both interest rate and FX derivatives. These declines followed the sharp rises observed in 2020 amidst the pandemic-related market turbulence,” the BIS said.

CDS clearing rates continue to rise

Additionally, it said that central clearing rates of credit default swaps (CDS) continued to rise in the first quarter, reaching 64%.

“The rate of central clearing of CDS continued to trend upwards. The share of CDS contracts (notional amounts) cleared by central counterparties (CCPs) rose by almost 2 percentage points in the first half of 2021, to 64%,” the BIS said.

“This is up from 56% in 2019, where the clearing rate had prevailed since end-2017. The recent rise was mainly driven by multi-name contracts.

“By contrast, the clearing rate for interest rate derivatives (red line) has remained relatively stable since 2015, at around 75%. While the clearing rate of FX derivatives has remained low (4% at end-June 2021).”

It also noted the rise was most notable for short and medium-term CDS contracts.

“Among CDS contracts, clearing rates of short- and medium-term contracts have risen the most in recent years. The rate for short-term contracts (less than one year) was 53% at end-June 2021, up 26 percentage points since end-June 2016,” the BIS added.

“Similarly, the rate for medium-term contracts (one to five years) stood at 70%, up 29 percentage points. By contrast, the rate for long-term contracts (more than five years) rose by only 13 percentage points to reach 45%.”

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