OTC Derivatives Statistics – Implications for Commercial Real Estate Investors


The latest OTC derivatives statistics from the BIS reveal a significant increase in outstanding derivatives with an overall notional value of $667 trillion – up by 8% compared to last year. Interest rate derivatives saw particularly impressive growth despite seasonal fluctuations, rising by 8%. Meanwhile FX derivatives also experienced notable expansion during the first half of this year at a rate of around 10%. These developments underscore how crucial derivatives remain for managing financial risks effectively and efficiently- especially when navigating unpredictable markets like those involving interest rates or foreign exchange transactions. Investors who understand these dynamics will be better equipped to make informed decisions about their investment strategies moving forward.

For commercial real estate investors, the derivatives market trends have significant implications. Interest rate derivatives – which constitute a large portion of this market – directly affect borrowing costs and hedging strategies for these investors. The observed increase in notional amounts suggests heightened activity within interest rates markets that could lead to volatility down the line. Investors must take note when planning financing or risk management plans for their portfolios accordingly. Additionally FX derivatives growth highlights increased cross border transactions as well as currency risks involved with international investments; henceforth making it imperative for investors to keep abreast of such developments while managing their assets effectively.

The changing landscape of central clearing has significant implications for credit default swaps (CDS) investors. Specifically, the share of centrally cleared CDS decreased from 70% to just over half at around 65%. This decline in outstanding positions could impact both risk management strategies and accessibility within real estate markets. Investors must remain vigilant about these market changes as they have potential effects on broader financial conditions that influence commercial property values. Stay informed!

Our take (from the Straight to Smart newsletter):

Rekindling Rate Cut Dreams

Article Excerpt:
Key takeaways
• The value of outstanding derivatives (notional amounts) grew by 8% overall in 2023. Amounts rose by 15% in the first half of the year and fell by 6% in the second, a seasonal saw-tooth pattern evident since at least 2016.
• Interest rate derivatives, which grew by 8% yoy, drove overall growth in 2023 (up 17% in the first half and down 8% in the second).
• Outstanding FX derivatives (notional amounts) also rose in 2023, growing by 10% in the first half but declining by 0.4% in the second.
• The share of centrally cleared credit default swaps, which had risen steadily over the last decade, dropped from 70% at end-June to 65% at end-December 2023.

Click to read original BIS article:
OTC Derivatives Statistics at 2023 Year End

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