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Fixed Income market briefing July 2019

Release date: 08 Jul 2019 | Eurex Exchange, Eurex Clearing, Eurex Group

Fixed Income market briefing July 2019

Overall, European Fixed Income markets continue to face headwinds from geopolitical and global event risks, namely the U.S./China trade tensions. This has helped suppress volumes across European Fixed Income, with weaker data weighing on yields and sentiment, albeit moves in futures being more of a slow grind higher in price terms. This has helped to cap any short-term spikes in volatility, with moves higher faded by real money. Bund volatility remains well within its 3.5-6% corridor with 1x2 spreads being the theme to express directional views. The French and Italian segments have outperformed the core German benchmark products as end investors search for yield, supporting both futures and options volumes. The main theme of H1 has been the focus on adding to carry positions. This in part has been helped by weaker than expected economic data. On a macro level one of the main beneficiaries of this has been Yen on safe haven flows. Looking at volumes across cash, IRS and derivatives space, the front end has been repricing the potential for further QE and tiering from the ECB.
As mentioned above, the bright spots in our portfolio have been the Italian and French segments within the rates space. Another bright spot was Fixed Income ETF options, which saw decent volumes into the end of H1. This is a segment I expect to see further growth as we continue to build liquidity in the products and more end clients add these to their European tool kit. I am also excited by the progress we have made in getting functionality like Inter-product spreads (IPS) approved, which will be live in Q3/2019.
One more important topic to mention is the transition to risk free rates (RFR's) which is keeping many of the market busy this year. Eurex is working closely with its members to ensure readiness to help facilitate a smooth transition and build liquidity in a new RFR world.

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


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