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Fixed Income Highlights - January 2018 edition

Release date: 31 Jan 2018 | Eurex Exchange

Fixed Income Highlights - January 2018 edition

Market briefing

First of all, I'd like to take the opportunity to say a huge thank you to our members and clients who continued to show Eurex strong support throughout 2017, despite grappling with the implementation of MiFID II.

Looking back on 2017, I'd say that global markets continued to hold up well. In Europe, Fixed Income markets were driven by geopolitical risk, with volumes across the board at Eurex robust. Whilst implied volatility remained range bound for much of the year, volumes across our products increased year-on-year. Periphery European futures and options contracts continued to benefit from regional geopolitical and event risks, together with short-term spikes in volatility.

Volatility remains heavily directional with the speed of sell offs and it is clear from the macroeconomic picture that Fixed Income markets are taking their direction from equities and geopolitical event risks. Central Banks have acknowledged that data remains skewed to the upside with inflationary pressures seeping into prices. Economic data across Europe continues to highlight the fact that Europe is in better shape than maybe market pricing is suggesting.

From a product perspective, it has been a busy time for the team having introduced a number of products throughout 2017. In mid-September, the Corporate Bond Index Futures were launched and I think these contracts will start to see liquidity build in the first half of the year. At the back end of the third quarter, options on Italian BTPs were launched which has seen OI and ADV continue to be well supported. In November we launched Fixed Income ETF Options on a series of iShares underlying's, ensuring that Eurex stays at the forefront of product innovation in Europe. Given the growth in Fixed Income ETF's over the past few years, this was a natural asset class to add to our portfolio. 

Highlights that I thought were worth mentioning:

Looking ahead to the year, the macroeconomic backdrop remains supportive for yields to edge higher, with the rise in commodity prices and the core momentum in inflation having an upward bias central banks are more hawkish in their rhetoric, which should have a positive impact on volumes across the board. The US has priced in two further hikes in 2018, with Europe currently be under-pricing this risk given the overhang of Brexit.

Themes to lookout for in 2018:

  • Fed expected to hike interest rates twice in 2018
  • New composition of Fed Board could result in a significantly different approach, especially as Powell is the first Fed governor since 1979 without formal economics training
  • The new Fed composition and possibility of hiking too fast could be a source of uncertainty/volatility in 2018 for US rates
  • As the ECB tapers QE, yields are expected to increase (changed supply/demand dynamics)
  • Yield curves are expected to steepen in 2018 across G7 currencies
  • With the ECB's QE withdrawal being much more significant relative to the US one in 2014-2015, volatility could spike more often in 2018 in Europe
  • Supportive macro backdrop: strong cyclical growth, easing fiscal policy, end of regulatory drive and only moderate tightening of monetary policy

I wish all of our members a prosperous 2018!

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

Facts & figures

At a glance

At Eurex, the year 2017 trading volumes stood at 1,676 million contracts, a slight decrease compared with the year 2016 (- 2%). However, the fixed income segment alone is up by 10.55%, compared to the prior-year period, partly due to a significant increase of 23.72% in the option segment but also significant increases in many of the European government bond futures.

On 3 January 2018, the long-awaited overhaul of the Markets in Financial Instruments Directive (MiFID II) finally became a reality. The lead-up was challenging for all involved, but it also inspired stakeholders to find the best solutions together. Learn how Deutsche Börse Group tackled MiFID II - as a strong partner to customers and regulators alike.

MiFID II will start the probably largest structural change that Europe's derivatives markets have ever experienced. In order to keep pace with the regulatory requirements, Eurex launched a new price discovery service for the OTC space. With Eurex EnLight, the exchange is venturing into a new realm -  beyond regular order book-based exchange trading. Read our interview with Randolf Roth, Member of the Eurex Executive Board, how Eurex has taken MiFID II as an opportunity that goes far beyond solving regulatory issues.

Product launches 2017

Since the launch of Options on Euro-BTP Futures (OBTP) on Monday, 2 October 2017, the contract has traded 101,181 contracts. Two market makers are actively quoting on the screen and are also providing liquidity in the off-screen market. 13% is traded on the screen and 87% in blocks. Find out more.

On Monday, 20 November 2017, Eurex launched options on three iShares Fixed Income ETFs: 

  • iShares USD High Yield Corporate Bond ETF
  • iShares J.P. Morgan USD Emerging Markets Bond ETF
  • iShares USD Corporate Bond ETF

"The growth of fixed income ETFs in Europe has expanded the range of investors and the ways that they use ETFs. These investors are telling us they need options on our fixed income ETFs to provide a way to manage volatility in portfolios using a tool that is more representative of the cash bond market", says Brett Olson, Head of Fixed Income iShares in EMEA for BlackRock. Currently, three Market Makers (Credit Suisse, Deutsche Bank and Goldman Sachs) are ready to quote. Find out more.


Discover a new way to source liquidity - watch the video to learn more about how our new service provides efficiencies to the OTC market.
Eurex took another strategic step to further enhance its market structure by applying its core competences around transparency and efficiencies to the over-the-counter (OTC) market.
Eurex has enhanced its existing market structure with the electronic price discovery service Eurex EnLight, which allows banks and brokers to selectively contact Market Makers with requests for quotes (RFQ) in order to find a trading counterparty. Orders are then automatically transmitted to Eurex' T7 Entry Service for exchange trade confirmation and post-trade processing.

At Eurex Clearing, we have implemented a default management process to handle the default of one or more of our Clearing Members. Both, the default management process and the margin methodology Eurex Clearing Prisma® are based on a liquidation group set-up.

A liquidation group contains products with similar risk characteristics which can be liquidated simultaneously. For each liquidation group, a dedicated holding period has been defined, which indicates the time needed to finalize the default management process for a portfolio in such liquidation group. Identical holding periods are used as input factors for the margin calculation, to ensure that given margin offsets persist within the default management process.
Learn from our clearing experts about what happens in case of a default scenario and why portfolio hedging is so important.

Eurex Clearing's offer to accelerate the development of a liquid, EU based alternative for the clearing of interest rate swaps gains broad market support. Currently 25 market participants from the US, the United Kingdom, Continental Europe and Asia already decided to participate in Eurex Clearing's partnership program. The early sign-up period expired on Monday, 20 November 2017 and the participants have been disclosed on the Eurex Clearing website.

Furthermore, Eurex Clearing cooperates with major execution platforms for OTC-traded interest rate swaps to enhance its price transparency, price discovery and liquidity. BGC Partners, Bloomberg, i-Swap, a TP ICAP Group company and Tradition's Trad-X are each in the process of becoming recognized as an  'Approved Platform' as part of the Eurex Clearing Partnership Program framework. This program rewards interest rate swap price makers for providing competitive Eurex prices to both, the inter-bank and end-user market via execution platforms. Find out more.


GlobalCapital awarded Eurex Exchange twice this year. For the third time in a row, Eurex was honoured as "European derivatives exchange of the year". The award as "Global derivatives exchange of the year" is a first. With no less than two awards our overall offering and product diversity to trade and hedge risks across a broad range traditional and alternative asset classes has been widely recognized.

The FOW International Awards recognize the best performance in the cleared derivatives industry over the judging period, which runs from July to the end of June each year. With the recent award, Eurex Exchange has been recognized as leader and innovator in the industry. Eurex took home the award for "Most Innovative New Contract" in the category equities and equity indexes as well as " Traders' Exchange of the Year". In the region Middle East and North Africa (MENA), Eurex received an award as "International Exchange of the Year".

Kind regards,
Philip Simons

Eurex Exchange - The broadest choice of Equity Index Derivatives worldwide.


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