Dec/ Year-end Recap of CME activity

I’ve posted a recap of activity in the CME Case Shiller futures for December in the Reports section, or you can access it here. I’ve also updated a set of graphs (here) of all 11 regional contracts and the OI (here) and Volume (here) figures for contracts since inception (2006).

Volume and OI for December remain low as only five contracts traded last month (across four regions and three expirations).

Bids for all contracts (except CHI) were higher than last month.  Bid/Ask spreads, both for outright orders and calendar spreads, continue to tighten.  (There’s a new table in the Dec. recap that illustrates how bid/ask spreads have tightened throughout the year).

I’ve made three changes (during 2014) that I believe have helped tighten spreads and should continue to help trading in 2015:

  • A focus on fewer contracts with better quotes, rather than spending limited capital to populate quotes in all 121 contracts (11 regions * 11 expirations), and
  • The notion of creating a benchmark security (CUSX16) with a very tight bid/ask spread (< 1 point for most of Dec.) that can be used for both calendar spreads and Nov ’16 intercity spread orders, and
  • I’ve been able to find a broker (Insigniafutures.com) that will allow me to re-start posting IC spread orders

In addition to tighter markets, there are at least three topics that should foster debate about (and use of ?!?) home price futures:

  • The overall debate about home prices (i.e. have prices topped/are we in a bubble) seems to have intensified, which should bring hedgers to this market.  (I’ve had more inquiries on “how do I hedge against declining home prices” in the last 3 months than any other quarter).
  • The rise in the stock market, decline in oil prices, lower interest rates, and better employment numbers should all work through to better consumer sentiment.  And yet, CME Case Shiller futures prices are lower today than on Dec. 2013, despite an 11% gain in the S&P.
  • At some point, I believe that regulators, rating agencies and stock analysts will reward participants who hedge home price risk (e.g. banks, RMBS deals with greater AAAs, or higher PEs).

While volume and activity levels have been low, I remain optimistic about prospects for increased use of CME Case Shiller futures.  Please feel free to contact me (johnhdolan@homepricefutures.com) if you have any questions about this report, or any issues related to home price derivatives.