Derivatives Market Overview
January 2026
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Funding Markets
Short-term equity funding costs have decreased in recent months with year-end pressures now in the rearview mirror. 3-month financing spreads for SPTR have fallen from 113 bps in October to 64 bps as of January 31, 2026. Longer-term funding costs have also declined, although they remain elevated relative to historical averages, with 5-year total return swaps trading at a 90-bp spread to the Fed Funds rate.
One-year funding levels continued to trade near the median level of the prior two years across equity and fixed income markets.
Gold Cash and Carry
Cash-and-carry strategies seek to earn a positive financing spread after adjusting for carrying costs. The strategy buys a near-dated futures contract (e.g., February 2026) with the intent of taking delivery of the physical asset and sells a far-dated futures contract. The financing levels in the table account for storage costs associated with taking physical delivery of gold.
Volatility Markets
Despite elevated risks to both sides of the Fed’s dual mandate, concerns about Fed independence, and long-run fiscal sustainability, forward-looking measures of rate volatility decreased throughout 2025 and continued to decline in January. Implied rate volatility is currently at the lowest level since 2021 as market expectations are for the Fed to keep rates near current levels throughout the year.
While rate and equity markets were relatively quiet in January, several commodity markets experienced significant volatility. In particular, silver and gold markets experienced wild swings, setting new all-time highs before closing the month with dramatic sell-offs. Realized volatility for silver ended at the highest level in the prior 20 years, while gold volatility ended near the peak level experienced during the 2008 financial crisis.
What Stands Out
The significant winter storm that impacted much of the country provided a reminder of the dislocations that can occur in energy markets due to disruptions in supply and demand. The cost of next-day natural gas delivery at Henry Hub[1] increased to an all-time high of over $30/MMBtu on January 23, a more than seven-fold increase from the start of the month. As demand increased and supply was disrupted by temporary factors, the pricing impact was limited to spot and near-term delivery months. While the price moves for futures contracts appear minor compared to spot prices, the BCOM natural gas index returned 39% for the month. The February contract finished trading on January 28 at $7.46/MMBtu, more than 100% above the December 31 closing price.
[1] Please refer to the glossary for more information.
Data as of January 31, 2026. Sources: Bloomberg Index Services Ltd., Bloomberg, iVolatility, dealer indications, NISA calculations.
Glossary
What is the MOVE Index? The ICE BofA MOVE Index measures U.S. bond market volatility by tracking a basket of OTC options on U.S. interest rate swaps. The index tracks implied normal yield volatility of a yield-curve-weighted basket of at-the-money one-month options on the 2Y, 5Y, 10Y and 30Y constant maturity interest rate swaps. The index value is equal to the average of the implied normal yield volatility of the four options, where the 10Y option is given a 40% weight, and the other components each hold a 20% weight.
What is the VIX Index? The VIX Index is a calculation designed to produce a measure of constant 30-day expected volatility of the U.S. stock market derived from mid-quote prices of the S&P500 Index call and put options.
What is the Henry Hub? Henry Hub is a key distribution point on the natural gas pipeline system in Erath, Louisiana. It is the delivery point for natural gas futures contracts traded on the New York Mercantile Exchange (NYMEX). Spot prices represent the price for next-day delivery while futures prices represent the cost of delivery during the specified delivery month.
What is a 3Mx10Y USD Swaption? A swaption is the option to enter into an interest rate swap. The 3Mx10Y USD Swaption is a three-month option giving the purchaser the right to enter into a 10-year interest rate swap.
This overview is for informational purposes only. The information has been obtained from sources considered to be reliable, but the accuracy and completeness are not guaranteed. There is no assurance that any economic trends mentioned will continue or that any forecasts will occur. Economic data are as of the dates noted.
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