Derivatives Market Overview
November 2025
Subscribe to NISA’s Derivatives Market Overview. 
Funding Markets
The year-end S&P 500 Total Return Index (SPTR) December/March forward-starting swap levels remained relatively stable during November, trading between Fed Funds +100 bps and +110 bps throughout the month. While swap levels remain elevated relative to historical averages, equity funding has not realized the same degree of year-end pressure and volatility that was experienced in late 2024.
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., December 2025) 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.
Volatility Markets
The SPX recovered to end the month approximately flat after being down 4.41% on the month through November 20. Labor market risks, Fed policy uncertainty and growing concerns around the potential ROI for massive AI infrastructure investments all contributed to choppy trading and an increase in both implied and realized SPX volatility during the middle of the month. The 30-day realized volatility ended the month at 14.2%, its highest level since May, while the VIX closed above 26.4 on Nov. 20, its highest closing print since April. Once again, markets bounced back in the latter stages of the month, with the volatility surface ending the month slightly below the prior month. Single stock implied volatility fell during the month, with the VIXEQ1 Index decreasing from 40.0 to 35.9.
Short-term Funding Markets
Short-term funding markets experienced years of significant liquidity and limited stress as the Fed grew its balance sheet in response to the COVID-19 crisis to stabilize the financial system. The current quantitative tightening cycle (QT), which began in June 2022, has taken years to unwind the excess liquidity from the system. During October and November, the Fed’s reverse repo program (“RRP”) usage fell near zero for the first time in years, raising the potential for increased stress in short-term funding markets. In this program, money market funds or other eligible participants effectively lend cash to the Fed and receive Treasuries as collateral. When participants have better yielding alternatives, the number of accepted bids typically falls. The Fed announced it would end the current QT cycle on December 1, earlier than many projections had indicated, to stabilize its balance sheet and prevent further tightening in liquidity.
November was a relatively stable month across most derivatives funding markets, with modest dislocations isolated to short-term repo markets. However, with year-end approaching, it is something to monitor during December as the potential for dislocations is elevated.
What Stands Out
As the availability of cash appears thin and demand for cash is elevated (see note above of RRP), the overnight repo market experienced increased volatility recently, which has caused SOFR rates to spike. This spike in SOFR rates has led to an increased use of the Fed’s standing repo facility (not to be confused with the reverse repo program mentioned above), which was put in place in 2021 to serve as a shock absorber for liquidity disruptions in the overnight repo market and should prevent SOFR from becoming materially disconnected from Fed Funds.
As a result of these pressures in funding markets, the average basis between SOFR and Fed Funds has reached its highest level since the repo crisis in September 2019.
This has resulted in increased risk for participants relying on overnight repo for synthetic exposure and increased basis risk between short-term funding rates. Because total return swaps for many markets can be traded on either SOFR or Fed Funds, this increased basis volatility warrants consideration when entering derivatives positions. The chart below indicates levels for various maturity SOFR/Fed Funds basis swaps. A SOFR/Fed Funds basis swap effectively reflects the spread between SOFR and Fed Funds, which an investor would be indifferent to either rate over the maturity of the swap. As an example, a 3-month swap currently has a level of 10 bps, meaning an investor would be indifferent to receiving Fed Funds +10 bps or SOFR for three months. Keep in mind, as recently as June, that level was 0 bps.
[1] Please refer to the glossary for more information.
Data as of November 30, 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.
Disclosure Information
By accepting this material, you acknowledge, understand and accept the following:
This material has been prepared by NISA Investment Advisors, LLC (“NISA”). This material is subject to change without notice. This document is for information and illustrative purposes only. It is not, and should not be regarded as “investment advice” or as a “recommendation” regarding a course of action, including without limitation as those terms are used in any applicable law or regulation. This information is provided with the understanding that with respect to the material provided herein (i) NISA is not acting in a fiduciary or advisory capacity under any contract with you, or any applicable law or regulation, (ii) that you will make your own independent decision with respect to any course of action in connection herewith, as to whether such course of action is appropriate or proper based on your own judgment and your specific circumstances and objectives, (iii) that you are capable of understanding and assessing the merits of a course of action and evaluating investment risks independently, and (iv) to the extent you are acting with respect to an ERISA plan, you are deemed to represent to NISA that you qualify and shall be treated as an independent fiduciary for purposes of applicable regulation. NISA does not purport to and does not, in any fashion, provide tax, accounting, actuarial, recordkeeping, legal, broker/dealer or any related services. You should consult your advisors with respect to these areas and the material presented herein. You may not rely on the material contained herein. NISA shall not have any liability for any damages of any kind whatsoever relating to this material. No part of this document may be reproduced in any manner, in whole or in part, without the written permission of NISA except for your internal use. This material is being provided to you at no cost and any fees paid by you to NISA are solely for the provision of investment management services pursuant to a written agreement. All of the foregoing statements apply regardless of (i) whether you now currently or may in the future become a client of NISA and (ii) the terms contained in any applicable investment management agreement or similar contract between you and NISA.
