While the zero or near-zero interest rate policies of central banks around the developed world are continuing, trading of active cash treasuries and their corresponding futures products remains active and interest-rate futures markets both in the U.S. and Europe continue to grow and to add new products and new competition, according to a new study by the Aite Group, a financial industry research and advisory firm.

Aite reports that in 2010 the overall trading volume in global interest-rate futures returned to near pre-crash levels of over 3 billion contracts, not seen since September 2008.

There is also more competition in the market.

In the U.S., interest-rate futures trading is dominated by CME Group, which bought the Chicago Board of Trade in 2007, with its clearinghouse controlling some 95% of the open interest in the interest rate futures sector.

But CME is facing competition from both ELX Futures, which hits its two-year anniversary this July, and NYSE LIFFE U.S., which launched Eurodollar and Treasury futures trading this year.

In Europe, a major development according to Aite is a new combined Eurex/NYSE LIFFE exchange which will kick off operation once the merger of NYSE Euronext and the Deutsche Bourse is finalized. 

As the Aite report notes, this merger will bring the European interest-rate futures market full circle, since the Eurex had been “wrestling liquidity away” from the LIFFE exchange’s German interest rate futures business and now the two former rivals will be one.

Primary participants in the U.S. interest-rate futures market are proprietary trading firms based in Chicago, followed by the major broker/dealers and banks that use the markets to augment their market-making activities in the cash and OTC derivatives markets. Also in the market are hedge funds and managed fund businesses, as well as asset managers, bond funds and pension funds.

Over the past year there have been a number of new products introduced in this market including Ultra T-bond futures, launched in January 2010, which have a 25-year maturity, substantially longer than the original 15-year-maturity T-Bond contract; On-The-Run Treasury Futures, designed to let customers gain exposure to the most recently auctioned Treasury securities in the two-year, five-year and 10-year sectors and Weekly Treasury Options on Treasury futures, introduced in January of this year, which expire every Friday that is not already a quarterly option expiration date.

Also new are Sovereign Yield Spread Futures, the CME Group’s first foray into non-dollar interest rate products, which are contracts that wrap the yield spread between the debts of specific countries, including the U.S., U.K., France, Netherlands, Italy and Germany, into single futures contracts.