Derivatives Market Overview
December 2025
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Funding Markets
The year-end S&P 500 Total Return Index (SPTR) December/March forward starting swap levels tightened significantly during December, decreasing from Fed Funds +100 bps to Fed Funds +60 bps. Despite elevated swap levels during most of the year, equity funding did not realize the same level of year-end pressure and volatility that was experienced in late 2024.
One-year funding levels ended the year 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., January 2026) with the intent of taking delivery of the physical asset and sells a far-dated futures contract. The financing levels in the table take into account the storage costs associated with taking physical delivery of gold.
Silver Derivatives Markets
Key derivatives markets for silver include the forward market that primarily trades out of London and the futures market that trades on CME Group’s COMEX exchange in New York. With silver extending its extraordinary 2025 rally during December amid heightened volatility, significant discrepancies between the respective derivatives markets have formed. While the silver forward curve is materially backwardated, the futures curve remains in contango. This has resulted in a material difference between London silver forward prices and New York silver futures prices further out on the curve.
Volatility Markets
The SPX ended the month nearly flat for the second consecutive month. Both implied and realized equity volatility decreased during the month, with VIX reaching its lowest levels of the year during December. Implied rate volatility continued to trend lower and the MOVE Index fell to the lowest level since October 2021.
What Stands Out
Commodity benchmarks, specifically the BCOM Index and S&P GSCI Index, will undergo their annual rebalancing process to 2026 target weights during the January roll period beginning on January 8. Keep in mind, these benchmarks use different weighting methodologies that result in materially different commodity allocations. The BCOM Index factors liquidity into its weighting scheme and also limits the weights to individual sectors. Due to the application of sector limits, the annual rebalancing of BCOM tends to result in reducing exposure to sectors that have outperformed. With gold prices up 64% and silver prices up a remarkable 141% during 2025, a key impact will be a reduction in the weight of precious metals within the BCOM Index. For investors with significant exposure to the benchmark, this represents a material shift in underlying exposure to gold and silver within their portfolio. With these markets already experiencing elevated volatility, shifting open interest is another potential source of market impact during January. Cocoa’s re-inclusion to the BCOM Index is also noteworthy as index-tracking activity may add an estimated 27% to open interest in the commodity.[2] [1] Please refer to the glossary for more information.
[2]NISA’s estimate is based on an assumed $120b of BCOM Index exposure and current open interest as of 12/31/2025.
BCOM Index applies a 1/3 weight to production and a 2/3 weight to liquidity. Individual commodities are capped at 15% of the index with 25% sector limits, and 33% Commodity group limits.
S&P GSCI Index weights commodities based on production volumes. Individual commodities are capped within their sector, but sector allocations are not limited.
Data as of December 31, 2025. 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 VIXEQ Index? The Cboe S&P 500 Constituent Volatility Index (“VIXEQ Index”) is designed to measure the market-cap-weighted 30-day implied volatility of a basket of S&P 500 constituents. While the VIX Index measures implied volatility using SPX options prices, the VIXEQ Index is based on single stock options prices.
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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