Equity financing has richened significantly during the post-election rally, and is trading in-line with levels seen in past Dec rolls during year-end bull markets. We believe the US rolls are likely to richen moderately further as demand for financing over year-end ramps up during the roll and runs into constrained dealer capacity due to GSIB dynamics.

 However, we don’t expect these dynamics to drive a disruptive funding squeeze like in 2014 and 2017, since equity positioning appears moderate and buy-side investors are increasingly providing balance sheet to financing markets over year-end as a supplement to the constrained dealer community. Investors who want to monetize the elevated equity financing rates into year-end can sell March 2021 S&P 500 futures or go short a 2M S&P 500 swap versus buying the market in cash (fully-funded) via ETF.

 Given an improvement in positioning and constrained supply, we believe the US rolls are biased towards richening into expiry and recommend rolling long positions early, apart from MSCI EM where we adopt a neutral view and recommend rolling in-line with volumes.

 Interest rate risk remains modest this quarter, with the Fed likely pinned to the zero lower bound for the foreseeable future and LIBOR-OIS stable over thepast couple of months, but the December 16th FOMC meeting could impact risk sentiment. We see dividend risk on the S&P 500 and Nasdaq rolls due to the impact of index rebalances and uncertainty around AVGO’s dividends. The US rolls also face dividend risk due to the gap between bottom-up estimates and implied dividends, but this is a smaller factor than in the past 2 quarters.

 Following the roll discussion, we present an overview of volume trends for global equity and equity-linked markets. The back section of the report contains detailed roll statistics for the S&P 500, Russell 2000, Nasdaq 100, S&P 400,MSCI EM, and MSCI EAFE index futures.

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