Craig Siegenthaler: Thanks. I had a follow-up on the rate side, too. 10 years down like €“ can you guys hear me?
Terrence Duffy: Yes, go ahead.
Craig Siegenthaler: Perfect. Thank you, guys. So, the 10-year is down like 40 basis points year-to-date. The Fed could go on hold in three months to six months. Those will probably be negative factors for your rate complex, but at the same time, QT does continue and there are margin €“ lower margin requirements. So, like how should we think about all these kind of mix of positive and negative factors on the rate complex?
Sean Tully: Yes. I think similar to my answer earlier, what’s pricing to the curve right now, obviously, the world goes to CME’s Fed funds futures to see what the expectations are in the market or the Federal Reserve. Currently, there is about 50 basis points or two more 25 basis points tightening priced into the curve. And then further out the curve, there is actually 200 basis points in easing. As I said earlier, the uncertainty about the Federal Reserve is, from my perspective, and if you look at the market like increasing, not decreasing, relative to the probability of either tightening or easing and in each case by substantial amounts. We see that the dispersion of economic data with the 517,000 non-farm payrolls, versus, for example, the ISM numbers, which are running in the high-40s, you have everything from the potential for continued boom to the potential for recession.
In addition to that, you can look at the excess savings of households that remains post-COVID, which remains according to recent reports at around $2.6 trillion. So, enormous excess savings, enormous uncertainty, huge increases in rates from the Federal Reserve, I personally think that the uncertainty is very high. The rates could go either way. And what we have seen again is, overall, for our treasury futures, they have declined slightly relative to last year, down 3% in terms of volumes. But as I said earlier, our short-term interest rate options, which are reflective of that uncertainty of the Federal Reserve were up 40% year-over-year. So, I think that the environment is highly uncertain.
Terrence Duffy: Let me just add to what Sean said, and this is just a personal theory that I think the Fed. When you say, Craig, that they could hold on their increases, I think when you looked at most of 2022, most of the participants were looking through a pivot. The pivot never happened. And we saw, to Sean’s point, the Fed share talking more hawkish even as of recently a couple of days ago. So, even if they were as a hold, I think people would anticipate that, that would mean a pivot, which would mean massive activity on refis and people waiting to do a lot of business as they are waiting for that moment that you were referring to as a hold. And if in fact the market was to do a pivot if that was to happen, I think it would be more activity, not less. So, even at a hold, I think that would not be bearish for CME, that could be very bullish for CME.
Craig Siegenthaler: Thank you, Terry.
Terrence Duffy: Thank you.
Operator: Our next question is coming from the line of Andrew Bond with Rosenblatt Securities. Please go ahead.
Andrew Bond: Hey. Good morning. Just following up on energy and specifically natural gas, 2022 was one of the tightest gas markets over the last decade. And this year, we appear to be set up for one of the more oversupplied markets in many years. We are seeing this pricing at the lowest level in 18 months. Can you talk about how this dynamic is likely to impact market participation and perhaps some of the structural shifts we have seen since natural €“ in the natural gas market since the Russian invasion?
Derek Sammann: Yes. And natural gas is an interesting one. It was directly €“ certainly impacted by the Russian invasion when you had that pipe gas coming from Russia directly into Europe, which is effectively the basis for the flow for the TTF contract. So, like crude, natural gas market is beginning to normalize. Now, given the unusually warm weather we have had both in Europe, which I think has failed a lot of Europe out as well as here in the U.S. The market was making sure that there was enough supply going into a normal winter. It’s now feeling oversupplied in a warm winter, which is not a terrible thing for the consumer, but is some interesting dynamics in the market. We actually are seeing €“ when we looked at last year, the full year, our Henry Hub volume was down a couple of percent, 2%, 3%, something like I think €“ I saw something a little bit of a larger magnitude and the downdraft.
But as I mentioned before, open interest is up 10% from the Q3 low. So, we are seeing that market begin to normalize. And more importantly, we are seeing participants in the large open interest holders up 17% from beginning to Q4. January is starting well. Overall, our nat gas complex as a whole was up about 1%, lead by options, up 8%. So, we are seeing some normalization of activity there. I think in the same way that we think about the structural position of our energy markets in the same way that we have seen the market evolve around WTI as that global physical market, we are seeing the same thing happen around Henry Hub. And Henry Hub is by far the largest natural gas market in the world growing the importance every year. That’s a function both of the significant production in the U.S., but the growing export capacity and volumes out of the U.S. as well.
So, it’s not only is Henry Hub a huge domestic market, it’s becoming in light of the challenges to TTF, the global marker as well. TTF is going to have the position or the European market will have to begin to reference an LNG point out of Northern Europe. The TTF itself was taking pipe gas coming from Russia. So, in terms of where we are seeing client participation, similar to crude, we are starting some normalization, open interest up, client participations flowing back in and the centrality of Henry Hub global nat gas market puts us, we believe, in a very strong position. However, market dynamics evolve, whether we are going to be low and flat for a while or trending back up. That’s just a function of we are in the middle of gas season right now in an unusually warm winter.
I think that’s part of the overhang in the price right now. But we like the dynamics. We like our position and just the magnitude of Henry Hub versus TTF is something like it, I think the Henry Hub market would you normalize by molecule size is about 20x the size of TTF. So, we like our position. We like our customer participation and the open interest trends are heading in the right direction.
Andrew Bond: Alright. Thanks.
Terrence Duffy: Thanks Andrew.
Operator: And our next question is a follow-up question from the line of Alex Kramm with UBS. Please go ahead.
Alex Kramm: Yes. Hey. Hello again. Just one follow-up on the energy business, you got a bunch of questions on that. And I actually wanted to step back there for a second. I mean you said several times that you really like your strategic position. But when I look back over the last, whatever, 5 years, 10 years, 15 years, that business has been basically ex growth. And in the last 5 years, for example, I think it’s down 4% CAGR in revenue terms. When I look at your primary competitor, which obviously we all know and track, I mean I think at the same time, these guys have grown 5% revenue CAGR. So, there is a 9% delta. So, I hear you with the positioning, but I am just wondering like what structurally has happened there? And I know you have different product sets and so forth, but you still play in the same sandbox. So, hoping you can close that gap and maybe any idea like how?
