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Fixed Income Highlights - March 2018 edition

Release date: 27 Mar 2018 | Eurex Exchange

Fixed Income Highlights - March 2018 edition

Market briefing

It has been a relatively robust period for European fixed income markets and the wider markets in general. Eurex has seen a pickup in volatility across the board and volumes in our benchmark products remain strong, together with good performance in our Italian BTP futures and options. There have been further dislocations in correlation across rates, commodities, FX and equities, which have helped to underpin momentum in volumes.

Equity volatility has picked up as we have seen a dislocation within credit markets, largely driven by positioning and flows. Geopolitical and event risks continue to dominate directionality, with Fed rhetoric indicating that the Federal Open Market Committee (FOMC) is converging towards four hikes in 2018. The main driver for the fixed income markets is likely to be twofold in the coming months, comprising i) the risks of protectionism and ii) the potential for the BoJ and the ECB to signal the beginning of tapering off QE faster than the market expects.

The bouts of volatility that Europe is experiencing are still relatively short-term and fixed income markets are looking for a more sustained period of higher volatility for ranges to be broken. From a G10 rates perspective, the market appears very cautious and positioning appears light. Implied Bund volatility is still in the 4-6% corridor and until this breaks, it is difficult to see a material shift in sentiment. 3% appears to be the level for U.S. 10y yields that the market is watching for, and this could be the tipping point for rates.

In terms of volumes, we have seen strong growth in our Italian BTP options with ADV circa 3400 in 2018. This demonstrates the fantastic support that we have witnessed from our members and the market in general. This is a segment with good growth potential.

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


Facts & figures




Product news

European government bond spreads reacted strongly to the outcome of the Italian elections, with the Bund/BTP spread widening as much as 12 basis points on the day the election results were announced. Investors are now taking advantage of liquidity in longer-dated options expiries, as the underlying futures have rolled into the June contracts and offer a liquid underlying to next three options expirations.

Since the launch of Options on Euro-BTP Futures (OBTP) on October 2, 2017, 235,000 OBTP contracts have been traded. 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. We now have 40 members actively trading OBTP contracts. Find out more.

Corporate Bond Index Futures - tradability for U.S. participants
The world's first exchange-traded corporate bond index derivative has been available for trading by customers in the U.S. since the beginning of March 2018. It is the first time that the U.S. Commodity Futures Trading Commission certified a debt security index future.

As a hedging instrument for credit exposure, the Eurex EURO STOXX 50® Corporate Bond Index Futures contract represents an efficient alternative to existing products such as credit default swaps, while its interest rate component makes it a flexible portfolio management tool that fine-tunes bond strategies. This standardized futures contract is cash-settled, leverages straight through processing, and is based on the debt of the benchmark Euro STOXX 50® index constituents. The index is calculated every minute, providing the utmost transparency for trading decisions in this new exchange-traded asset class.

Learn more about the Corporate Bond Index Futures. Read more on our derivatives offering in the U.S.


Video series






Watch our short video on Eurex EnLight and find out how the electronic request-for-quote (RFQ) service adds value to our trading participants. Eurex EnLight allows banks and brokers to selectively contact Market Makers with requests for quotes in order to safely negotiate off-book trades. The fully automated solution replicates the core aspects of the voice business, while affording its users all the advantages of electronic data collection and timely retrieval of all this information to meet best execution requirements.


Client Asset Protection - updates
Identify which model will best satisfy your business, capital and risk requirements

Eurex Clearing offers a wide range of segregation models;
from individual to omnibus. Since the launch of our client segregation models, we have worked with the market to ensure that each segregation model is designed to provide flexibility in terms of available position and collateral account set up.

Safety and efficiency have been the key design principles.
This booklet aims to provide you with an overview of the client asset protection models and to identify which model will best satisfy your business, capital and risk requirements.


Introducing a new client type: Eurex "Specified Client" 
Within our capital asset protection options, Eurex Clearing offer customers a variety of client types to accommodate risk appetite and individual capital requirements. Clients, here a client of a Clearing Member, can be either undisclosed or disclosed (i.e. known) to Eurex Clearing. Depending on the client type, varying levels of position segregation and asset protection can be achieved. In response to client demand, Eurex Clearing has introduced a new, simpler, client type. This new setup will significantly shorten onboarding timelines and ease the operational burden of onboarding clients to Eurex Clearing. Read more


Kind regards,
Philip Simons


Eurex Exchange - The home of the euro yield curve.



 

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Interest rate derivatives

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Interest rate derivatives make up one of the largest markets in the world. About 70 percent of all listed and centrally cleared euro interest rate derivatives are traded on Eurex Exchange. These figures relate to the fixed income and money market segment.

Coverage of the euro yield curve

Interest rate derivatives

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As the home of the euro yield curve we cover the entire euro yield curve from overnight to long dated bond futures. This new flyer informs about our product spectrum of cash bonds, repo, listed and OTC derivatives.

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We list some of the world's most heavily traded fixed income futures as well as fixed income options.

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With our EURIBOR and EONIA derivatives as well as the EUR Secured Funding and LDX IRS Constant Maturity Futures you can manage short-term liquidity and interest rate risks in the best possible way.

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Eurex Repo is the leading European market place for international secured funding and financing covering the GC Pooling, Repo, SecLend and Triparty Repo.

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