Navigating Volatility: The Rise of Cboe Credit Index Futures in a Transforming Bond Market
In an era defined by macroeconomic uncertainty and digital transformation, credit futures are revolutionizing how investors manage risk and access liquidity. Cboe® iBoxx® Credit Index Futures were designed to align closely with the structure of these popular credit ETFs and have seen record adoption in recent years. This growth reflects a broader transformation in how investors manage credit exposure, hedge risk and optimize capital allocation.
The Evolution of the Corporate Bond Market
The corporate bond market has undergone a dramatic shift since the Global Financial Crisis. Electronification, increased data availability and the rise of systematic investment strategies have reshaped the fixed income ecosystem. The proliferation of fixed income ETFs — particularly the iShares ® iBoxx ® $ High Yield Corporate Bond ETF (HYG) and the iShares ® iBoxx ® $ Investment Grade Corporate Bond ETF (LQD) — has been central to this evolution. These ETFs are hubs for price discovery and risk transfer, catalyzed by the SEC’s 2019 “ETF Rule” (Rule 6c-11), which standardized the use of custom baskets in ETF creation and redemption.
This regulatory milestone unlocked liquidity across thousands of bonds, enabling seamless portfolio trading and laying the groundwork for the development of credit futures. Cboe’s iBoxx Credit Index Futures — IBHY (High Yield Corporate Bond) and IBIG (Investment Grade Corporate Bond) — were intentionally designed to align with these ETFs, using a unique index construction methodology that intersects benchmark indices with actual ETF holdings. This alignment helps to facilitate efficient arbitrage, hedging and access to deep liquidity pools.
Record Growth and Market Integration
As of May 2025, open interest in IBHY futures grew to $1.2 billion, a 4.5x increase year-over-year. IBIG futures followed closely with $598 million in open interest, marking a 4.4x rise. Average daily volume (ADV) has also climbed significantly, driven by customer demand — a sign of genuine market adoption.
Bid-ask spreads in these futures tend to be notably tight, offering cost efficiency compared to trading the underlying bonds. For example, IBHY and IBIG futures generally maintain average bid/offer spreads of just 0.05% of the futures price. Liquidity is further enhanced by integration with ETF and swap markets, and the shift to quarterly expirations has concentrated trading activity, aligning with treasury futures and improving roll mechanics for institutional users.
Importantly, a substantial portion of trading occurs offscreen via block trades. In May 2025, 47% of IBIG futures volume was executed as block trades, underscoring the market’s capacity for large-scale risk transfer beyond the visible order book.
Strategic Utility in Volatile Markets
The increase in credit futures usage is not merely structural, it’s also strategic. Recent macroeconomic shocks, such as the “Liberation Day” tariffs announced by President Trump in April 2025, have triggered increases in volatility, with Cboe’s Credit VIXHY and VIXIG Indices reaching levels unseen since 2020. In such environments, credit futures offer a dynamic hedging solution.
These instruments inherently combine credit and interest rate risk. Investors seeking to isolate credit risk can offset interest rate exposure using U.S. Treasury (UST) futures. The optimal hedging strategy depends on the nature of the market shock. For example, in a deflationary shock like the one experienced during the COVID-19 pandemic IBHY and IBIG futures dropped 22% and 21%, prompting investors to short IBHY and go long USTs to target credit risk.
Looking ahead, concerns around stagflation — marked by slow growth, persistent inflation, and rising trade tensions — could make unhedged short positions in IBHY or IBIG futures a potent risk management tool.
Deep Ecosystem Integration
Cboe credit futures are deeply embedded in the broader credit ecosystem. They interact seamlessly with ETFs, Total Return Swaps (TRS), Credit Default Swap Indices (CDX), and Portfolio Trading (PT). This interconnectedness fosters a coherent environment, enhancing price discovery and facilitating cross-instrument strategies.
Expanding the Toolkit: Options on Credit Futures
In 2024, Cboe launched options on its credit futures, addressing structural challenges in ETF options. These American-style options settle physically into futures and incorporate dividends into the underlying index, reducing early exercise risk. Unlike ETF options, which suffer from borrowing complexities and concentrated liquidity in short tenors, futures-based options offer more efficient hedging and improved liquidity across the term structure.
The rapid evolution and adoption of Cboe Credit Index Futures underscore their crucial role in today’s dynamic credit market. By bridging liquidity, efficiency and strategic flexibility, these instruments empower investors to manage credit exposure with greater precision amid market uncertainty. As the credit ecosystem continues to innovate, Cboe Credit Index Futures are poised to remain at the forefront of how institutional investors navigate risk, optimize portfolios and respond to macroeconomic shifts. Their growth signals not just a transformation in trading tools, but a step forward in the resilience and adaptability of the fixed income landscape.
Disclaimer:
Trading in futures and options on futures is not suitable for all market participants and involves the risk of loss, which can be substantial and can exceed the amount of money deposited for a futures or options on futures position. You should, therefore, carefully consider whether trading in futures and options on futures is suitable for you in light of your circumstances and financial resources. You should put at risk only funds that you can afford to lose without affecting your lifestyle. For additional information regarding the risks associated with trading futures and options on futures and with trading security futures, see respectively the Risk Disclosure Statement Referenced in CFTC Letter 16-82 and the Risk Disclosure Statement for Security Futures Contracts. Certain risks associated with options, futures, and options on futures and certain disclosures relating to information provided regarding these products are also highlighted here.
This information is provided for general education and information purposes only. No statement provided should be construed as a recommendation to buy or sell a security, future, option on a future, security future, digital asset, financial instrument, investment fund, or other investment product (collectively, a “financial product”), or to provide investment advice.
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