financial instruments chart, derivaties

Amid rising inflation, higher interest rates and the effects of the war in Ukraine, over-the-counter derivatives activity surged in the first half of the year, according to new data from the Bank for International Settlements (BIS).

In the first half, the market value of outstanding contracts soared by 47% to $18.3 trillion (all figures in U.S. dollars) from $12.4 trillion at the start of the year, the BIS said, “led by increases in interest rate derivatives” as expectations for monetary policy in many markets shifted.

Additionally, rising food and energy prices drove up the value of some commodity derivatives, it noted.

“Elevated uncertainty related to higher than expected inflation readings in many economies and the outbreak of war in Ukraine drove developments in derivatives markets in the first half of 2022,” the report said.

Alongside the surge in market value, gross credit exposure also jumped from $2.5 trillion to $3.3 trillion in the first half.

In addition to the shifting economic conditions, the BIS also said that ongoing reform of benchmark interest rates is reshaping the landscape for interest rate derivatives, as LIBOR rates for some currencies are being replaced by new overnight risk-free rates.

The bank also reported that the notional value of outstanding OTC derivatives rose modestly, climbing to $632 trillion by the end of June, up from $598 trillion at start of the year.