2023 June quarter-end market commentary -

As we approach the close of June and wrap up the second quarter of 2023, many Independent Price Verification (IPV) teams find themselves in the midst of a particularly hectic week. A key item on the to-do list is likely to be the time-consuming and error-prone task of updating the bid-offer spreads for interest-rate swaps. As we highlighted in an earlier post, "Navigating Bid-Offer Valuation Adjustments Amid Financial Market Turmoil", this process is particularly important for Q2 2023 given the remarkable rates volatility in March and April. Recognizing the challenges that IPV teams are facing, we thought it would be helpful to share how implied bid-offer spreads, derived from transaction data, have evolved for major interest-rate curves since the beginning of the year.

USD OIS Bid Offer

Exciting year for bid/offer spreads in USD OIS swaps space. As we can see in the graph for 2/5/10/30y swaps, the year started off relatively calmly, but big spikes in March due to Silicon Valley bank and Credit Suisse in the same month. B/O spreads spiked up from around 1bp in the beginning of the year to above 4bps at the peak on strong volumes. Since end of April we saw spreads normalise again but have gradually crept higher during June - an interesting dynamic given VIX has not moved much - worth to keep an eye on this as we have seen before that bid/offer spreads may be faster to react to sentiment than VIX might. (see blog post here https://blog.pricevault.io/bid-offer-spreads-react-faster-than-vix)

Euribor Bid Offer

Euribor swaps bid offer saw relatively less volatility compared to the USD OIS space although the same theme is present, with a spike up around March/April followed by a calm May and subsequent gradual trend in bid offer spreads widening during June.

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