Derivatives Market Overview
February 2026
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Funding Markets
Financing costs broadly decreased as volatility increased modestly in February. One-year funding levels are currently trading below the median of the prior two years across equity and fixed income markets. The equity funding term structure continued to steepen during February as short-term financing has normalized, while long-term financing remains elevated.
Precious Metals
Precious metals markets remain volatile, and significant discrepancies continue to persist between the silver forward market that primarily trades out of London and the futures market that trades on CME Group’s COMEX exchange in New York. While the silver forward curve is relatively flat, the futures curve remains comparatively steep. This has resulted in a material difference between London silver forward prices and New York silver futures prices for longer tenors.
Volatility Markets
SPX ended the month 0.87% lower, with realized volatility increasing to 13.5% in February as potential disruptions from AI continued to dominate headlines. Implied volatility also increased in February for both equity and rate markets. The shift higher in the cost of downside protection was notable, as the pricing of upside call options was effectively unchanged.
Markets continued to experience considerable dispersion with the AI-driven selloff in software remaining relatively isolated to the sector. Single-stock implied volatility remains elevated, with the VIXEQ Index trading in the 90th percentile of its prior 10-year history, contrasted with VIX in its 69th percentile. Implied correlation across stocks continues to trade near historical lows, despite increasing downside concerns for the market.
What Stands Out
Private credit concerns remained in focus, particularly for lenders with concentrated exposure to the software sector. Prevailing spread levels for BDC issuers in corporate bond benchmarks increased approximately 50 bps during the month, highlighting the growing risks. These spreads are indicative of the cost of leverage for private credit funds and can significantly erode the value proposition for investors, as we highlighted in our recent paper.
For investors utilizing implicit or explicit leverage in their asset allocations, we believe that reducing the cost of leverage by using derivatives where funding costs are lowest often represents the clearest opportunity to increase expected returns. While fund structures vary significantly, private market vehicles often utilize high-cost forms of fund-level leverage, which detracts from returns.[2] Within private equity markets, usage of NAV loans and subscription lines continues to increase, with borrowing costs often reaching eye-watering levels. Meanwhile, public markets, particularly fixed income, offer more efficient forms of leverage for investors seeking to optimize their allocations.
[1] Please refer to the glossary for more information.
[2] Key differences between loans used by private market funds to create leverage and derivative positions used for public market leverage include the term of the position, margin requirements and recourse. Importantly, we are utilizing measures of fund-level leverage cost rather than portfolio-company or property leverage cost to make a more direct comparison across exposures.
Private equity leverage costs offer limited transparency, so we used market reports published by Rede Partners and Haynes Boone to estimate the cost. Prevailing spread levels for the public debt issued by BDCs and REITs were used as a proxy for the cost of leverage paid by private credit and private real estate funds. Public market costs of leverage were estimated based on prevailing total return swaps or futures levels for a 12-month term. ETF levels are adjusted for underlying expense ratios.
Data as of February 28, 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 VIXEQ Index? The Cboe S&P500 Constituent Volatility Index (VIXEQ Index) is designed to measure the market-cap weighted 30-day implied volatility of a basket of S&P500 constituents. While the VIX Index measures implied volatility using SPX options prices, the VIXEQ Index is based on single stock options prices.
What is the COR3M Index? The COR3M Index is an implied correlation index that provides instantaneous market estimates of expected correlation from the implied volatilities of the SPX index and top 50 component options. The index is calculated using Cboe Hanweck constant-maturity delta-relative implied volatilities.
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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