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Fixed Income market briefing February 2020

Release date: 02 Feb 2020 | Eurex Exchange, Eurex Clearing, Eurex Group

Fixed Income market briefing February 2020

Fixed income futures volumes picked up towards the end of January after a quiet start to the year, characterized by low volatility. The markets broadly exhibited a risk-off sentiment emanating from the fear of the coronavirus spreading further and its impact on global growth saw developed market government bonds rally globally as equity markets sold off.

The last two weeks of January saw 10-year yields fall 22bps in both France and Germany as yield curves bull flattened. We saw increased trading in the Bund and OAT futures with Schatz and Bobl futures volumes underperforming the rest of the curve. This was largely driven by low realized volatility due to the negative and suppressed yields at the short end of the curve.

The Italian segment continued to outperform, particularly in BTP options, due to the geopolitical risk in Italy and realized volatility outperforming implieds. The center-left Democratic Party beat the far-right League Party in a key regional election, which increased political stability and sent Italian 10-year yields tumbling below 1%. Bund-BTP spreads narrowed from 165bps to 137bps in the second half of January and this was coupled with significantly raised BTP options volumes.

From a new product perspective, our newly listed fixed income ETF options on the iShares Euro High Yield Corp Bond UCITS ETF saw a 22,000-contract trade during its first full month of trading, signaling the early stages of growth and adaptation in this segment in Europe. This is a sector that we expect to develop throughout 2020, and we are genuinely excited by the size of this market.

Eurex fixed income ETF options on both flagship UCITS Euro and US Dollar high yield ETFs offer investors the ability to hedge their exposure to high yield bond indices in a cost-efficient manner. Risk-off sentiment has driven US Dollar high yield spreads 70bps higher and higher quality Euro high yield spreads 35bps higher in the second half of January.

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


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