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Fixed Income Highlights - October 2017 Edition

Release date: 19 Oct 2017 | Eurex Exchange

Fixed Income Highlights - October 2017 Edition

October Edition

Market briefing

Looking back on the third quarter of this year, I'd say that global markets have held up well. Although we have seen implied volatility remain range bound, volumes across the board increased year-on-year (YOY). Periphery futures and options contracts have benefited from regional geopolitical and event risks, together with short-term spikes in volatility. The September sell-off saw strong volumes across the core benchmark products including futures and options. Bund volatility continues to trade in the 4%-6% corridor and open interest (OI) is +20% YOY.

Volatility remains heavily directional with the speed of sell-offs and the macroeconomic picture makes it clear that Fixed Income markets are taking their direction from equities. Across all asset classes, volatility remains in tight ranges. Central banks have acknowledged that data remains skewed to the upside with inflationary pressures seeping into prices. The November Fed meeting is priced in by the markets with most of the attention on whether the hawkish rhetoric from the BoE will lead to a 25 bps rise before year-end. Interestingly, the moves seen in pound sterling have largely benefitted from the depreciation of the US dollar. The market looks happy being in a 1.31 - 1.36 corridor.

From a product perspective, it has been a busy time for the team having introduced a number of products this quarter. In early September, the Corporate Bond Index Futures were launched and I'm genuinely looking forward to seeing this contract take off. At the end of the quarter, options on Italian BTPs were launched which has seen OI of 4,500 contracts in the first week of trading and ADV of 2,000.

Looking ahead to Q4, confusion and uncertainty after the Catalan referendum vote has failed to drive volatility higher (unlike in the situation after the French general elections) and Bund swap spreads have also been relatively steady which leaves the market seeking its next catalyst.

Lee Bartholomew, Head of Fixed Income & FX Product R&D, Eurex

Facts & Figures

 

 

On Monday October 2, 2017, Eurex launched Options on Euro-BTP Futures (OBTP), thus providing market participants with an efficient, accessible and cost-effective instrument that extends hedging and trading opportunities to Italian rate volatility. In the first week, OBTP has traded 6,875 contracts. Two market makers are actively quoting on the screen and are also providing liquidity in the call-around market.

Initially launched in September 2009, BTP Futures have traded 106 million contracts since the launch. They have continued to grow both in terms of trading volumes and open interest (ADV of 120,000 and an average OI of more than 370,000 in 2017). With the addition of the BTP Options, Eurex is now offering a complete suite of BTP products to help market participants to navigate through volatile times.

To learn more about the new Options on Euro-BTP Futures, please do not hesitate to contact Vassily Pascalis at T +44-20-78 62-72 11 or your local Sales representative, please refer to Eurex circular 098/17 or our website.

Market Maker contacts:
MAKO Fixed Income Partnership Llp
Graham Windett
T +44-207 8 62-05 59
graham.windett@makoglobal.com

Market Maker ID: MFILO    

Susquehanna International Securities Ltd.
Tom Quille
T + 35-3 124 78 659
tom.quille@sig.com
Market Maker ID: SISDB

The Bono Future started some additional activity a few days before the referendum was called by the Catalan government on October 1. Since then, we have seen an ADV of around 1,280 (vs an average of 867 in 2017). The Bono Future facilitates a better hedge for Spanish bond portfolios than any other contract. As we have seen the BTP Future still serves as a proxy hedge for periphery government bonds however the hedge might not be perfect. The FBTP on October 2 reacted quite strongly to the Catalan news at the opening, but then it mitigated this overreaction by ending at less than half way (in price move) of FBON's price change during the same day.

Eurex offers the broadest range of European fixed income contracts which delivers a more accurate hedge for bond portfolios. The recent launch of the BTP Future Options (OBTP) and the Corporate Bond Index Futures (FCBI) should enlarge the suite of hedging instruments, including respectively a periphery volatility hedge, as well as the credit component of bond portfolios.

Eurex Clearing developed a partnership program designed to further accelerate the development of a liquid, EU-based alternative for the clearing of interest rate swaps. The performance-based program aims to build a balanced ecosystem where responsibilities and benefits are fully aligned between all participants in terms of economics and governance. This market-led initiative will benefit clients and the broader marketplace through greater choice and competition, improved price transparency as well as reduced concentration risk. 

The ten most active program participants will be eligible for a significant share in the economics of the multi-currency interest rate swap offering of Eurex Clearing on a permanent basis. In addition, these clients will be included in the governance and committee structure of Eurex Clearing AG. Participation is open to all Clearing Members and Registered Clients of Eurex Clearing.

Focus of the Eurex Clearing partnership program is on OTC interest rate derivatives. Find out more about our new program – registration is now open.

Events and Awards

Thank you for attending the Eurex Annual Derivatives Forum in Frankfurt and in London

Thank you for your interest in our "Annual Thank you for your interest in our "Annual Derivatives Forum" that was held in Frankfurt on September 21 and in London on October 12. More than 300 representatives from the buy and sell side attended and made the Forums informative and insightful events.

Our keynote speakers provided us with an outlook on the eurozone economy and our panelists kicked off the panel discussion on interest rate returns and the end of quantitative easing.

The highlight of the forum was our Brexit panel, which uncovered the complexities arising and anticipated challenges ahead. Learn more about Eurex Clearing's partnership program designed to further accelerate the development of a liquid, EU-based alternative for the clearing of interest rate swaps. Furthermore, read about how Deutsche Börse Group's Brexit transition team helps customers deal with the changes and uncertainty surrounding the UK's decision to leave the European Union. Berthold Kracke, CEO of Clearstream Banking AG, Frankfurt, heads this team.

To find out more about futurization and our offering of innovative products such as Total Return Futures, watch the recent video interview with Antoine Porcheret, Senior Equity & Derivative Strategist, BNP Paribas.

The noteworthy session from a product perspective was the introduction of the EURO STOXX 50® Corporate Bond Index Futures. Launched on 19 September, it offers a versatile and efficient hedging instrument that enables buy and sell side to manage their credit risk of core eurozone country issuers.

Watch our speakers Lee Bartholomew, Head of Fixed Income & FX Product R&D, Eurex, and Dr. Jan-Carl Plagge, Head of Applied Research, STOXX, discuss the Corporate Bond Index Futures.

For the derivatives industry, 2017 is a year of change. Eurex is honoured to be acknowledged as the "Global derivatives exchange of the year" and "European derivatives exchange of the year" to create a better market place. Thank you all for your continued support that has contributed towards Eurex's success as the Global and European Derivatives Exchange of the year 2017.

To learn more about our products and services please contact Philip Simons at T +44-20-78 62-72 39 or Fiona Tramontana at T +44-20-78 62-76 56, visit our website or follow us on Twitter @eurexgroup and LinkedIn.

 

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