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Fixed Income Highlights - July Edition

Release date: 27 Jul 2017 | Eurex Exchange

Fixed Income Highlights - July Edition

July Edition

Market briefing

The first half of 2017 has seen fixed income markets enjoy a robust start, with geopolitical and event risk underpinning strong volumes across the board. The positive trend in volume development in FI products remains supported with open interest increasing YOY by 40% to 6 mn contracts for FI Futures and 5 mn in FI Options (+330%). In the context of European elections, Options on Euro-OAT Futures were relaunched in March 2017, building up an open interest of over 40,000 contracts to the end of May and ADV of 1,000 contracts. Over the last couple of months, markets have seen an easing in terms of geopolitical risks and economic data remains positive within Europe, adding pressure on the ECB to reduce quantitative easing over the course of 2018.

Inflationary pressure remains on the minds of many, but with oil pulling back this may ease future expectations of many. Curves still remain flat and rates have failed to materially break higher. The uncertainty has been somewhat reduced and volatility remains low across the board. The first half of 2017 has seen skew swing back and forth as rates markets look for the next catalyst for yields to push higher. With the recent sell off in futures, upside structures remain in vogue, with volatility being sold with the passing of event risk.

With volatility at lows by historical standards, it's difficult for investors to be short but then carry has been the thematic trend of recent years. To this end, most asset classes seem content to wait before putting more risk to work.

Lee Bartholomew
Head of Fixed Income & FX Product Research & Development

Facts & figures

Market participants once again relied on Eurex's fixed income suite of products, which posted strong growth. Government bond spreads have remained relatively stable with our periphery contracts performing strongly versus previous years. In the first six months of 2017, our core products and all periphery markets posted double-digit growth compared to the same period in 2016.

On the same period comparison, Euro-OAT Futures gained nearly 50%, Short-Term Euro-BTP Futures 75% and Euro-BONO Futures more than 72%. On the long-end of the curve, the Euro-Buxl® Futures continued to grow with volumes up by 32% on a same period comparison, whereas the Euro-Schatz Futures grew by 28%.



 Launch Date on Tuesday, 19 September 2017
With the introduction of EURO STOXX 50® Corporate Bond Index Futures, Eurex steps into a new asset class and offers a standardised, centrally settled and cash-cleared exchange derivative for trading and clearing in the European Corporate Bond market.

Eurex thus provides buy and sell side with a versatile and efficient hedging instrument to manage and replicate most of the existing interest rate and credit risk of core Eurozone countries.

The Corporate Bond Index Futures is a cash-settled index futures with a quarterly expiry and in addition or as proxy to the existing OTC products. As it has the structure of a standard Eurex Index Futures, the new product can be seamlessly added to existing infrastructure.

The Corporate Bond Index Futures will provide asset managers with efficient leveraged access to European Corporate Bond market beta. This can be achieved via a portfolio overlay and being able to easily add or subtract corporate bond exposure to a portfolio. For a relative value trading hedge fund, the new product opens up new alpha generating opportunities.

Read more in our factsheet.

Pioneering CCP transparency (part 2)

The Public Quantitative Disclosure (PQD) is an internationally agreed format defined by CPMI-IOSCO with the intention of enhancing CCP market transparency. Eurex Clearing has published its PQD since 2015 and continuous strongly to support transparency, both for market stability reasons as well as enabling the challenge and support of centralized risk management.

With the disclosure of Q4/2016, Eurex Clearing began a series of commentary to highlight key trends, discuss current topics and to shed some light on selected data points. Read the second part of the series and CPMI IOSCO key highlights for the first quarter of 2017.

OTC IRS Market update

Cleared Interest Rate Swaps (IRS) at Eurex Clearing in June saw a new record as the cleared notional of EUR 168 billion surpassed the previous record of EUR 152 billion dating from March 2017. Liquidity and Eurex Clearing's market share has grown further driven by uncertainty.

OTC GUI changes due to MiFID regulation

Article 3 of the MiFID regulations includes the requirement that the CCP shall accept or not accept the clearing of a cleared derivatives transaction executed on a trading venue within ten seconds from receiving the information from the trading venue and inform the Clearing Member and the trading venue of a non-acceptance on a real-time basis. This regulation will be implemented by EurexOTC Clear in a phased approach.

The first change was introduced for the EurexOTC Clear GUI on Monday, 3 July 2017 in simulation and on Monday, 31 July 2017 in production.

Antoine Porcheret, Senior Equity & Derivative Strategist at BNP Paribas, discusses the Total Return Futures (TRF):
What is equity repo?
What is a Total Return Futures (TRF) and how is it linked to equity repo?
As an investor, why should I trade TRFs?
Eurex won the Global Investor Award 2017 in the category "Exchange of the Year". Our derivatives exchange is the first recipient of this award, which measures excellence in the exchange world across asset classes and geographies.
Global Investor stated: "The derivatives exchange's innovative new products offer asset managers volatility protection and opportunities for yield."

Moreover, Eurex's continued commitment to convert over-the-counter products into exchange traded derivatives was highlighted. One example for this are Eurex's Total Return Futures and the firm's continued investments in growing the exchange traded FX market.

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