The Markets ConversatION Podcast

Quick Takes: What’s new in JPY swaps in 2024?

May 2, 2024 | Duration: 8 minutes

Speakers: Amir Khwaja and Chris Barnes


In this episode, Chris Barnes discusses his recent blog post, “What’s New in Yen Swaps in 2024“. The blog post covers four key topics:

  • The end of Yen TIBOR and the transition to the Yen RFR (TONA)
  • The ongoing battle for market share between LCH SwapClear and JSCC in clearing Yen swaps
  • The recent volatility in the CCP basis for Yen swaps
  • The explosion in volume of TONA futures trading

Chris Barnes finds the volatility in the CCP basis to be particularly interesting, as it’s not well-understood and there’s little transparency into the market.


Ali Curi: Hi everyone and welcome to ION Markets Quick Takes. I’m Ali Curi and every week, along with my guests, Amir Khwaja and Chris Barnes, we take a quick dive into the headlines on the Clarus blog.

Let’s get started.

Hi Amir.

Hi Chris.

Amir Khwaja: Hi Ali.

Chris Barnes: Hey Ali. How are you doing?

Ali Curi: I’m doing great. Welcome back to Quick Takes.

Chris, let’s start with you. What’s your Quick Take for this week? Which headline from the ClarusFT blog would you like to discuss?

Chris Barnes: All right, Ali, today for the first time in a while, I’ve actually had to take notes on this blog because I cover so much in it. I’m going to try and go through the detail of the blog because I think it’s all relevant for the podcast as well.

So the blog’s called, “What’s New in Yen Swaps in 2024”; I wrote this because a number of people that I was speaking to in the market were going out to Tokyo for the ISDA AGM, and so I thought it would be a timely thing to write about. I was kind of hoping that there wouldn’t be a lot of new stuff. You know, and so it would be a relatively simple blog, but as [00:01:00] with all of these things, every time we write this, it’s a really beneficial process for me because it forces me to look at a market that I’m not necessarily looking at day in day out.

And every time I do this, it doesn’t seem to matter what it is when we dig down into the data, when we dig down into the details, there’s always something going on. And with the end swaps, it’s not just one thing, it’s not just two things, there are three or four things in play at the moment. I won’t be able to do them all justice in the space of a Quick Take, but I do want to kind of get the four things across quickly.

I’ll start with the two things which are really split kind of, onshore and offshore. Number one is the fact that Yen LIBOR is gone. That ceased a long time ago. People who are trading Yen swaps now don’t even think about Yen LIBOR, it’s gone. However, this year we have had an announcement that Yen TIBOR will cease.

TIBOR was a different term rate to LIBOR and TIBOR has existed for a while. We even spoke a little bit back when LIBOR first ceased as to whether we’d see increased trading of TIBOR as a result of that. However, generally speaking, all of the swaps market has already moved to the Yen RFR, which is TONA.

But TIBOR has two indices. It has an onshore TIBOR and an offshore TIBOR. And they’re not called Onshore TIBOR and Offshore TIBOR. And they’re not called Domestic TIBOR and Eurodollar TIBOR. They’re called DTIBOR and ZTIBOR. And so it’s really, really confusing. Like only one of them is ceasing and I’ve worked out the way that I can remember it, is that it’s the domestic rate that’s ceasing and the domestic rate is DTIBOR.

So I’m now pretending that D is for Domestic. DTIBOR will cease at the end of this year. Strangely, there’s actually more notional outstanding [00:03:00] against ZTIBOR, the offshore version, than DTIBOR. So it looks like it’ll be a relatively small thing. I haven’t heard anybody talking about it, but it does highlight that for many, many, many years, there has been this element of Yen Swaps, which is onshore and offshore.

And so the second thing I want to remind people about in Yen swaps, and this is what I kind of expected the blog to be about is that there are two CCPs, two major CCPs who clear Yen swap. That’s LCH swap clear, out of London and JSCC, out of Japan. In a lot of ways, you have an onshore and an offshore cleared market in Yen swaps as well.

That market share, let’s say battle or fight or positioning has been going on for many years. It’s something we’ve blogged about a few times and it looks like recently the market share of LCH SwapClear has started to increase. It looks like it’s going above 30 or 35 percent for the first time for a while.

Now it’s not necessarily a stable thing, and I think it was last year, maybe it was 2022, I did look at market shares between LCH and JSCC at different maturities of swaps, and they do seem to change. They do seem to be, I’m going to get this wrong, but I think LCH are a little bit bigger in the short end than in the long end of the curve.

So the LCH market share approaches more like 40 or 45 percent at the short end. And so that’s a continuing metric that we continue to look at. So we’ve got two CCPs. So point number three is because there are two CCPs, there is, of course, now a CCP basis. And whilst I don’t think it’s got a lot of press coverage, that CCP basis actually moved a lot this year.

And what has happened is that the CCP basis in the long end of the curve, so like 20 years and 30 years, has gone negative. And I don’t think it’s gone negative before. And something that Amir and I always kind of chat about is, “What is driving what here exactly? Is CCP basis driving market share or does market share drive CCP basis?”

I don’t have an answer, but I think it is a fascinating kind of area to think about and well worth looking at the data in the blog. Finally! Fourth thing is there are now TONA Futures. And whilst we talk about a lot on this podcast and the blog about the market share battle for €STR Futures, in TONA Futures, there are only two exchanges battling it out, both Japanese, TFX and JPX, they seem to have pretty much a 50/50 market share as of 2024.

But the really interesting thing is that the futures volumes used to be tiny. And for whatever reason, in 2024, the volumes have exploded, and now the size of the TONA futures market seems to be almost equivalent to how big the Euro Yen term futures were before LIBOR cessation, before we went through this transition.

So for, like, really potentially very important things, I could have written a whole blog about each of those four things, probably. So, Amir, there’s a lot of content there. I’ve had to go through it quickly. Do you have any quick questions? Because we’re right up against time.

Amir Khwaja: Thanks, Chris. As you say, lot of content in that blog, I guess, you know, it seems to me, when we compare Yen with Dollars, I think, the shift to two RFI has been very efficient, right?

Comparatively. So I think that’s an interesting point in terms of it seems very smooth and TONA was doing extremely well in volume terms. I think your point about the basis, so two economically equivalent contracts and LCH and GSEC trade at a slightly different basis, been quite volatile this year, Yen rates a pretty low, so it’s probably quite material than the basis difference.

Chris Barnes: Yes.

Amir Khwaja: And, we haven’t really seen a real shift in market share. I mean, the JSCC is still larger, right? Do you think that’s because the members already know where they’re clearing and it’s down to client demand being the same?

Chris Barnes: I would say the CCP basis probably of all of the elements we look at is probably the least liquid.

The least transparent as well. And so it’s very difficult to get a feel for it. You know, it is a basis market, therefore it’s flow driven. I have to put a call out to risk. They tried to write an article about it, but you know, I don’t think people were very willing to share their kind of views or positions because it really came out as one of those articles where the conclusion was there were more sellers than buyers.

There is more behind that. And there was obviously a lot of research that went into it, but the overall sense was that was all that we can get right now. And so it’s a really difficult thing to say whether this is a structural thing, whether it’s changes in market participants, whether hedge funds are actively putting on curve plays on CCP basis, it’s so tough to say. So, so tough.

Amir Khwaja: Thanks Chris.

Ali Curi: Well, thank you, Chris. And please share with us again, the title of your blog post.

Chris Barnes: It’s a good question. “What’s New in Yen Swaps in 2024.”

Ali Curi: All right, great. That works.

Amir Khwaja, Chris Barnes, thank you both for sharing your Quick Takes.

Let’s do it again next week.

Amir Khwaja: Thanks, Ali.

Chris Barnes: Looking forward to it, Ali. Thank you very much.

Ali Curi: And that’s our episode for today. You can read more about these topics on the Clarus blog, and you can follow ION Markets on X and on LinkedIn.

Thank you for joining us.