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Fixed Income Highlights – November 2018 edition

Release date: 12 Nov 2018 | Eurex Exchange

Fixed Income Highlights – November 2018 edition

Market briefing

Volumes in core European rate futures and options increased substantially in light of the recent equity market downturn and continued geopolitical risks. Yields for 10-year German government bond debt moved between 35 and 55 basis points over the past month. While this has led to an increase in implied and realized volatility, we have failed to break out of the 4-6% corridor for any meaningful length of time. Volatility spikes have largely remained short-lived with program sellers fading the move higher in bund volatility.

Government bond spread widening drove volumes in our Italian BTP segment, as the Bund to BTP spread moved beyond 300 basis points and back below. It was a mixed bag as rating agencies responded to recent developments in the geopolitical landscape. S&P lowered its credit rating outlook on Italy from negative to stable and affirmed the debt grade at "BBB", while Moody's set the credit rating at "Baa3" with a stable outlook. Yields in 2-year BTPs doubled from 70 to 140 basis points, and volume in 2-year BTP futures increased by 30% versus their daily average for 2018. With Euro-BTS Futures trading more than 90,000 contracts per day in October, the two-year segment is clearly in investor focus, underlining Italian refinancing needs in the next two years.

BTP options benefited from these developments, and investors are increasingly finding the liquidity needed to hedge positions and express their trading views in these challenging markets.

In October, Options on Euro-BTP Futures nearly tripled in volume with a daily average of 20,449 contracts for the month compared to the 2018 average of 6,435 contracts per day. A new daily volume record printed on 25 October 2018 with 74,000 option contracts traded. Implied volatility in the 10-year Italian bond segment ranged between 14 and 16 percent in October.

Interestingly, more liquidity providers are looking at entering the BTP segment as volumes continued to increase, and its potential becomes more evident in 2018.

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


Facts & figures



News section

In a short video interview, Lee Bartholomew, Head of Fixed Income Product R&D, and Jenny Ivleva, Fixed Income Product R&D, share the reasons why Eurex launched the Three-Month SARON® Futures, how they fit into the overall product strategy, and how they support the Swiss market transition to a new risk-free rate.

Asian trading hours extension: "This will improve the price discovery process and general stability of markets"

Harold de Boer, Transtrend, gives a commodity trading advisor's opinion on Eurex' plan to extend its trading hours into the Asian time zones.

Interview with market participants: BTP yields continue to drive Euro-BTP volume

Investments in Italian government bonds have seen a significant increase recently. We reached out to NatWest Markets, Banca Akros and Anima SGR to see what lies ahead for the Italian economy, its political landscape and the success factors of the OBTP.


Events

In this webinar, a panel of speakers from Meyer Brown, BCG and Eurex will explore how the CCP clearing environment in Europe may evolve post-Brexit and the challenges various different re-location scenarios may pose from an operational, regulatory and legal perspective. Speakers will share Brexit action plans and shed light on how financial institutions may have to adjust to the new environment. Join us on 27 November.

Thank you for attending Derivatives Forum London


A big thank you to all Derivatives Forum London 2018 speakers and participants. Over 260 buy and sell side representatives attended this insightful afternoon. Discussions ranged from industry innovation to euro clearing and of course Brexit. Our asset class breakout sessions were forum highlights. In case you missed it, learn more on our listed fixed income products, futurization and our innovative product suite of Corporate Bond Index Futures, Fixed Income ETF Options as well as SARON® Futures.

 

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