What is BSBY Watch?

BSBY Watch is dedicated to tracking the growth of the Bloomberg Short-Term Bank Yield Index (BSBY), and is published by Eris Innovations.

By compiling BSBY-related news and data in a single place, and then adding some of our own commentary, we seek to highlight progress of the market’s adoption of BSBY as an interest rate tool well suited for managing credit risk.

As BSBY Watch helps the growing community of BSBY users witness the adoption of BSBY across loans and derivatives, Eris Innovations believes it will create additional liquidity and demand for CME Eris BSBY Swap Futures.

What is BSBY?

The Bloomberg Short-Term Bank Yield Index (BSBY) is published by Bloomberg Index Services, who describe it as being “developed to address the needs of the market by providing a series of credit sensitive reference rates that incorporate bank credit spreads and defines a forward term structure. BSBY seeks to measure the average yields at which large global banks access USD senior unsecured marginal wholesale funding.” For more information on BSBY, visit the Bloomberg web site.

Who is Eris Innovations?

Eris Innovations is an intellectual property licensing company that partners with CME Group, ICE and other global exchanges to develop futures and options products based on its patented product design, the Eris Methodology. Eris collaborates with CME and ICE to develop markets for Eris swaps futures, and earns licensing royalties based on futures exchange trading activity.

What are CME Eris BSBY Swap Futures?

Eris BSBY Swap Futures are the latest addition to the swap futures complex that includes Eris Libor and Eris SOFR.  Eris BSBY are quarterly swap futures replicating vanilla BSBY swaps, with tenors for one to ten years offering the margin efficiencies of CME Group listed futures, including outright levels up to 60% lower than comparable cleared interest rate swaps, and margin offsets with CME BSBY Futures, Eurodollars and Treasury Futures.

For more information, visit:  cmegroup.com/swapfutures and erisfutures.com/bsby

Why did Eris Innovations create BSBY Watch? Is it a money-making venture?

Eris created BSBY Watch to fill the market’s need for dedicated coverage of BSBY’s progress, to create an easy place for people to answer the question “How is BSBY doing lately?” by viewing consolidated news, data and commentary.

BSBY Watch is intended to foster the ecosystem of BSBY adoption important for the development of the market for Eris BSBY Swap Futures. We cull through comments from regulators, research companies, news organizations, legal firms, borrowers and lenders to present a consolidated view of the BSBY marketplace.

BSBY Watch is not intended to be self-supporting or revenue-generating; it is a market development tool for the ultimate benefit of Eris BSBY Swap Futures.

Why does BSBY Watch focus on BSBY specifically and not interest rates more generally?

With plenty of other voices focused on the critical emergence of SOFR (Secured Overnight Financing Rate) as the preeminent benchmark risk-free interest rate replacing USD Libor, we see fewer outlets focused on the development of BSBY specifically.

SOFR has earned its place as the primary USD interest rate benchmark, and CME Eris SOFR Swap Futures, based on the same Eris Methodology as Eris BSBY, provides a valuable tool for end user clients to manage SOFR exposure.

For a subset of interest rate users, particularly lenders and borrowers in the commercial loan market, BSBY offers a promising tool for flexibly managing credit risk. The ultimate value of BSBY as a tool depends on its adoption by a large ecosystem of lenders, borrowers, hedgers, speculators, and analytics providers, and by highlighting progress in this ecosystem, we are hoping to do our part in allowing the market to develop.

While other potential interest rate solutions for addressing credit risk also exist, the scope of BSBY Watch is limited to the development of the BSBY market.

Will BSBY Watch cover all BSBY derivatives, or only CME Eris BSBY Swap Futures?

BSBY Watch intends to cover adoption of BSBY in all its forms across the lending and derivatives markets, which currently includes bilateral swaps, cleared swaps, CME BSBY STIR Futures and CME Eris BSBY Swap Futures. Each of these derivatives plays an important role in the development of the BSBY market.

Is BSBY Watch going to talk about cryptocurrencies, NFT’s and the blockchain?

Not likely. But who knows where this crazy world will lead us?

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BSBY Swaps ADV: Notional value traded of bilateral and cleared interest rate swaps referencing Bloomberg Short-Term Bank Yield Index divided by the number of trading days in each month (i.e. Average Daily Volume)

CME BSBY Futures ADV: Futures contracts ($1 million notional) traded of Three-Month Bloomberg Short-Term Bank Yield Index (BSBY) Futures on CME divided by the number of trading days in each month (i.e. Average Daily Volume)

Source: Clarus Financial Technology data

3M Libor: 3-Month USD Libor (US0003M Index)

3M BSBY: 3-Month Short-Term Bank Yield Index (BSBY 3M Index)

O/N SOFR: Secured Overnight Financing Rate (SOFR Index)

3M Term SOFR: 3-Month CME Term SOFR (SR3M Index)