Eurex’s Euro-EU Bond futures set to boost transparency and liquidity in the EU debt market

What is behind Eurex’s initiative to launch Euro-EU Bond Futures?Covid-19 was a game changer for EU bond issuance. During the pandemic, the EU Commission scaled up the launch of EU bonds with the Support to mitigate Unemployment Risks in an Emergency (SURE) program in October 2020. This program was designed to raise money to finance short-term employment schemes and keep people in employment during pandemic related lockdown and established a European yield curve (in tenors from 3 to 30 years).  Following the SURE program, the EU launched the Next Generation EU (NGEU) bond issuance, a larger and more ambitious EU issuance designed to kick-start the economy after the pandemic and build a greener, more digital, more resilient economy.  The first bond under the NGEU program was successfully launched in June 2021. Following the initial launch, regular syndications and auctions, as published in the semi-annual funding plan, support the transparency of the bond issuance program. These two programs changed the game for EU bond issuance. Prior to 2020, the EU had issued less than 80bn in joint bonds. The SURE and NGEU programs totalled over EUR 900bn of potential issuance.  The EU enjoys a triple A-rating and the bonds are guaranteed as they represent direct and unconditional obligations of the EU. They qualify as HQLA, are ECB eligible and are available for trading on repo and cash platforms. Therefore, these bonds play a key role in European capital markets. Launching listed futures on the bonds was a logical step for Eurex to further extend the “home of the Euro yield curve”. The new instruments will support the growth of the market for EU bonds increasing transparency, liquidity and bringing more international investors to the market.What makes them attractive to investors?The futures enable firms to hedge any exposures they have to EU bonds with a standardized future referencing the same credit rating. They follow the standard of existing deliverable futures on Eurex and will be included in the same liquidation group as all other Euro long and short-term interest rate futures with portfolio margining opportunities via the Eurex PRISMA margining methodology. Credit index futures were also recently added to the same liquidation group further extending our cross-margining offer. For the launch, trading in the Eurex order book will be supported by dedicated liquidity providers ensuring a tight spread. They can also be traded via TES functionalities such as block, EFP and EFS.Why are you launching them now?The launch follows an extensive dialogue with market participants and the EU Commission. At the same time the underlying market has reached a level of maturity that warrants its own futures product.   The outstanding amount of EU debt already exceeds EUR 620 billion, making the EU the fifth largest issuer in Europe. Secondary market trading is on a par with some of the largest sovereign issuers.  In October 2024, the EU Commission joined Eurex Repo with the launch of the EU Repo facility. The event underscored the deepening of the EU debt market and the strengthening of its infrastructure. Are you expecting these to compete with the current very liquid government bond-based derivatives available at Eurex? Eurex Euro-EU Bond Futures are a tailored product to manage specific EU debt exposures. There are some indications that the current products have been used as a proxy for EU debt, but the increased spread-trading opportunities, combined with the opportunity to directly trade exposure in this new market segment, leads us to believe that the overall effect will be a positive one for the market bringing new opportunities to investors. How do the new EU bonds fit into the picture with the SURE and NGEU Bonds released in 2021?Since 2023, EU issuance has been consolidated under a single EU bond umbrella, the "Unified Funding" approach, irrespective of the program that is being financed. The broad definition of the deliverable basket in Eurex Euro-EU bond futures allows for the inclusion of bonds issued to finance further potential initiatives, also beyond 2026. What has been the feedback so far – and what are your expectations trading volumes following the launch on 10 September?The feedback so far has been overwhelmingly positive, with clients already working to incorporate the new EU Bond Futures into their systems to ensure readiness for the launch.  We see significant interest from market participants to support on-screen liquidity which we feel will allow for a strong start in September. We expect these new futures to quickly become an important part of the toolkit for investors seeking to trade exposure to European interest rate markets.Weiter zum vollständigen Artikel bei Deutsche Boerse AG Unsponsored American Deposit Weiter zum vollständigen Artikel bei Deutsche Boerse AG Unsponsored American Deposit