€STR Wars Part III: Return of the €STR

Dr. Elliot Banks, Chief Product Officer, BMLL

Earlier this year, our article ‘€STR Wars: Attack of the Clones’ analysed the rise of the futures linked to the Euro short-term rate (€STR) contract, and the importance of understanding this liquidity in order to minimise the cost of trade, find liquidity and hedge efficiently. In April, in ‘Attack of the Clones Part 2’ we extended the analysis to see how €STR futures trading volume evolved in Q1.

In ‘€STR Wars Part III: Return of the €STR’, we return to see how the €STR futures trading volume has evolved over the last 5 months. The analysis is YTD for ESTR futures, across ICE, CME and Eurest.

Volumes have remained around the 200K mark in the past few months (with a small increasing trend). There is a large spike seen on Apr 9th 2024, due to the ECB's April policy making where it was suggested that rate cuts would occur in June. Eurex continues to have the highest market share of trading volume

Fig 1: Traded volumes of €STR futures on ICE, CME and Eurex

Fig 2: Market share of €STR futures on ICE, CME and Eurex

Whilst volumes have remained more static, open interest continues to grow. ICE leads the way, followed by Eurex

Fig 3: Average spread of contracts of €STR futures on ICE, CME and Eurex.

Spreads continue to tighten across all three markets, suggesting increased liquidity in the product.

Fig 4: Activity levels of €STR futures

Understanding where liquidity lies continues to be crucial

As €STR continues to grow and gain market share, understanding the liquidity profile of competing €STR futures on ICE, CME and Eurex is critical for market participants to trade better. We are continuing to see differences in liquidity levels, depth of book and trading behaviour across the three markets. Using Level 3 historical data, firms can be in a better position to truly understand where to best trade these futures. The €STR wars rage on.