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Fixed Income Highlights – December 2018 edition

Release date: 12 Dec 2018 | Eurex Exchange

Fixed Income Highlights – December 2018 edition

Market briefing

November was a strong month overall for Eurex, with futures and options volumes up across the board. Despite the European Central Bank meeting being close to expectations, Draghi failed to talk up the possibility of quantitative easing extending beyond December. Although growth was ever so slightly downgraded, the overall picture has held up relatively well. Despite headwinds from Brexit negotiations from a political standpoint, the markets saw an uptick in volatility. This helped to underpin our volumes.

Geopolitical risks remained skewed to the upside and the ongoing trade war between China and the U.S. does not look like abating any time soon. The Italian BTP segment has had another strong month both in the futures and options space. The support we received from the market and the liquidity providers in this respect has been first class and demonstrates Eurex's focus on providing true liquidity in all market conditions.

The main themes remain ever-present. We are yet to see Bund volatility break out of the 4-6% corridor and directional positioning is expressed via strategies where we have seen decent year-over-year growth. With decent two price action in the government bond space, the French OAT options segment has performed robustly throughout November. Cash markets continue realize better than the swaps markets and hence exchange volatility has tended to lead moves over swaptions. Contrary to this, Schatz volumes were helped by flows in the top left of the swaption surface.

Looking ahead, markets are entering the notoriously quiet festive period on tenterhooks as market participants look to see what actually transpires between the U.S. and China. Equity markets are typically leading the fixed income market moves with many taking risk off into year-end. 

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


Facts & figures



News section

The introduction of the Three-Month SARON® Futures helps the Swiss market transition to a new risk-free rate. Eurex spoke with Martin Bardenhewer, Head of Financial Institutions & Multinationals, Zürcher Kantonalbank and Co-chair of the Swiss National Working Group on Reference Rates (NWG), Pascal Anderegg, Interest Rate Derivatives Trader at Zürcher Kantonalbank, and Michel Erni, Head of Market Rates & Director at Basler Kantonalbank about their first impressions.

While bid-offer spreads are still extremely competitive (same spread and size quoted for Eurex and LCH Euro swaps) we observed an increase in the basis for Euro swaps between LCH and Eurex Clearing in October which then declined again in November. In his article Matthias Graulich, Chief Strategy Officer, Member of the Executive Board of Eurex Clearing, points out that we have very balanced portfolios of both fixed payers and receivers, and thinks it is encouraging for fixed receiver clients to take advantage of a significantly better price at Eurex.

Tradeweb connects to Eurex for direct clearing

To enhance clients' trading and clearing workflows, Eurex Clearing and Tradeweb Markets, a leading global provider of fixed income, derivatives and ETF marketplaces, announced that they have established a direct connection for the clearing of over-the-counter (OTC) interest rate products.


Eurex Clearing is releasing the Cloud Prisma Margin Estimator (Cloud PME), a cloud-based solution for margin simulation of existing or custom portfolios of Exchange Traded Derivatives (ETD) under Prisma, the portfolio-based risk management framework of Eurex Clearing. The service is free of charge and is accessible through a GUI or an API.


Extended trading hours create extended opportunities. With global benchmark futures such as DAX® Futures, Mini-DAX® Futures, EURO STOXX 50® Index Futures, 90 MSCI Futures as well as futures on Bund, Bobl, Schatz and Buxl®, we offer more market access and have created the basis for portfolio diversification. From 8.00 a.m. Singapore time daily. In this video experts from the financial community explain what opportunities they see. Read more

Eurex Clearing plans to expand its Partnership Program to cover the repo and OTC foreign exchange (OTC FX) segments. For the repo segment, the aim of the program is to increase choice and efficiency for market participants in Special Repo and General Collateral instruments and to foster adoption and growth in the dealer-to-client repo business. Market participants can now register their interest to join the new program components for a planned start in Q1/2019.

Awards

Celebration times for Eurex
When it comes to industry awards Eurex never had reason to complain, but the last few weeks have been particularly noteworthy. Five awards from FOW and Risk in total and three of them based on clients' views.

Events


Our webinar on "Euro Clearing Post-Brexit - Are You Ready?" hosted by DerivSource on 26 November was very successful with more than 350 participants. Matthias Graulich, Chief Strategy Officer, Member of the Executive Board of Eurex Clearing, was on the panel together with representatives of Mayer Brown, Boston Consulting Group and Aviva Investors. In the webinar, the panel explored how the CCP clearing environment in Europe may evolve post-Brexit and the challenges various re-location scenarios may pose from an operational, regulatory and legal perspective. Speakers shared Brexit action plans and shed light on how financial institutions may have to adjust to the new environment. In case you missed it, watch the recording.

Note: Please be aware that some users might not be able to register via their company browser due to security systems and firewalls. In this case, they might want to check access options with their IT department or - if available - go via a personal browser or use a private device.

Thanks for attending our Derivatives Forums in 2018


A big thank you to all Derivatives Forum speakers and participants who joined us in Frankfurt, Paris, Amsterdam, Stockholm and London this year. We welcomed over 600 buy- and sell-side representatives and discussed what will shape the derivatives industry of the future. We look forward to seeing you again next year!

 

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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.

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