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Fixed Income Highlights – 1/2017

Release date: 26 Jan 2017 | Eurex Exchange

Fixed Income Highlights – 1/2017

Market Briefing – Fixed Income & FX

In the final quarter of 2016 Fixed Income markets enjoyed a strong performance that was largely driven by increased event and geopolitical risks. This helped drive better than expected realized volatility in the underlying markets which supported Eurex’s core and periphery products.

Looking ahead to 2017, it is likely that we will see a continuation of the developments that we witnessed in Q4. I expect to see economic data continue to perform in-line with market expectations, with risks skewed to building inflationary pressures in the US and UK. The ”Trump effect” is difficult to forecast, but a result of Trump’s potential fiscal policy could see modestly higher growth, higher inflation and yields, with risks over the Fed outlook more balanced. Looking to Europe, I see front-end yields anchored by central bank policy and the impact of the UK invoking article 50, leading to greater divergence vs. the US. 

Over the course of 2017, I expect to see the direction of European intermediate yields driven by the rhetoric around the Brexit. Whilst I can see the argument for higher yields and steeper curves, in the absence of clarity out of Downing Street, it is hard to see this materializing until the latter half of the year. Therefore, I expect the market to pause in Q1 2017 and trade in tight ranges.

Overall, I expect that the ECB and BoJ will likely be on hold in 2017, but tapering questions may resurface in Q2/2017. Front-end yield spreads between the US and Europe/Japan will likely continue to widen, with long-end spreads beginning to stabilize. I expect to see more uncertainty in the rates and FX markets linked to central bank policy and increased geopolitical risk, which should translate to structurally higher rate volatility.

In short, I expect that key thematic themes will continue to dominate developed markets, which should translate to better volumes across fixed income markets.

Lee Bartholomew | Head of Fixed Income & FX Product R&D

Macroeconomic Outlook 2017

Dr. Sylvain Broyer, Head of Economics, Natixis offers a brief outlook on the global macroeconomic perspective for 2017, touching on all areas from Brexit to Trump and inflation risks across the Eurozone.
Mr. Broyer holds doctorate degrees in economics from the Universities of Frankfurt and Lyon. In November 2012 he became member of the “ECB shadow Council”, the Handelsblatt’s panel of leading European economists.

Facts & Stats

In 2016, Eurex saw increasing demand for its highly liquid benchmark products as well as strong growth in a number of new product segments across asset classes. Over the course of 2016, 1,727,891,584 contracts were traded, a plus of 3 percent compared to 2015.

With a strong 4th quarter in 2016 following the American elections, Fixed Income Futures as well as Fixed Income Options had a strong last quarter with an increase of 6.4 % from Q4/2015 to Q4/2016. Euro-OAT Futures showed a strong growth of 34,7 % over the year and we anticipate further growth in 2017 driven by the French elections. The Euro-Buxl Futures covering the long-end of the curve had a record year with 27.1 % growth. Data from the ECB shows that during 2015 the bulk of ECB purchases in the German government bond market were bonds with a relative short maturity. However, since the start of 2016 this concentration in the short and middle part of the curve has moved to the end of the curve – as the ECB had to buy core-country government bonds with longer maturities. Reasons for buying longer maturities are the fact that short maturity bonds trade below the deposit rate and that many bonds in the belly of the curve are likely close to the maximum of 33%, the maximum percentage that may be purchased per outstanding bond.

Upcoming regulatory changes, such as the introduction of margin requirements for bilateral instruments, MiFID II or geopolitical events such as the upcoming French elections will continue to underline the benefits and strengthen the volumes of the ETD market in 2017.

Top Market Structure Trends to Watch in 2017

Read the article and overview of the top markets trend in 2017 written by Greenwhich Associates. Here are the top 5:

Eurex Awarded ‘Exchange of the Year’ by Risk

Eurex takes home the prestigious award ‘Exchange of the Year’ at this year’s award gala, hosted by ‘Risk’ at the Brewery in London. Lee Bartholomew, Head of Fixed Income & FX Product R&D accepted the award for Eurex. The decision was made by Risk's editors and journalists, weighing a number of factors, including innovation, liquidity provision and quality of service.

“Over the past few years, Eurex can point to the launch of a clutch of contracts that have rapidly become benchmarks in their own right – quietly revolutionising the way users transfer risk in key markets such as European government debt and equity derivatives in the process. The latest success– December's launch of total return futures (TRFs) on the Euro STOXX 50 ® – was spurred by the implementation of the non-cleared margin regime for over-the-counter derivatives. In a little over two full weeks of trading, the contracts racked up 20,130 lots, worth a notional €650 million. Eurex is betting the drive towards greater standardisation among equity derivatives market users and will see TRFs replicate the success it has achieved with its dividend index futures, now a stable hedge for structured equity dealers,” wrote Risk in their winner statement.

Trader Development Program - 2017

Eurex Exchange continues its successful Trader Development Program incentive scheme supporting traders new to Eurex markets. Participants who qualify for the program will benefit from significant fee waivers to support new traders taking their first steps with Eurex. The program incentivizes new traders from specific countries in Europe, Asia-Pacific, the Middle East, Africa and the Americas.

Under the program, proprietary trades executed by first-time Eurex participants (registered users) via order routing systems are exempt from trading and clearing fees.

Several hundred traders across Europe, the US and Asia actively participated in 2016 – trading Eurex products across all asset classes.

Events

Eurex will be present at numerous events and trade fairs during the year. Please visit our website for an overview of upcoming conferences.