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European Fixed Income Markets Heike Eckert FIA Expo 2002 November 7, 2002
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2 Developments in the European government bond market With the European Monetary Union the Euro denominated Government Bond Market became one of the biggest debt securities market worldwide Design of European bonds was harmonised as much as possible –Interest rate calculation was changed to Actual/Actual –Coupons were paid on a yearly basis (except Italy and some short term government bonds in Spain, Portugal and Greece) –Settlement periods were set to T+3 days where possible Spread differentials diminished significantly, but did not disappear completely (see next slide) Therefore a homogeneous European Government bond yield curve did not exist
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3 Convergence of European yield differentials based on German bond yields
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4 German fixed income markets Benchmark Status Underlying Cash Market Repo Market Exchange traded derivatives German Government Bonds Bund- Bobl-, Schatz- Repos Bund-, Bobl,- Schatz-Futures Market Size Transparency Standardisation Quality Reliability Liquidity
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5 Success of Eurex fixed income futures Used as a standard reference when comparing and evaluating fixed income securities in Europe Combined with the strength of the Eurex trading and clearing system –member network, reliability, transparency, costs, integrated clearing house –availability of whole German yield curve Liquidity has increased to an incomparable level Eurex Bond Futures have developed to the world´s leading Interest Rate Contracts
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6 Demand for Euro Bund Future worldwide
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7 BundBoblSchatz Average Traded Volume764,000453,000431,000 (Number of contracts per day) Average Trade size23 28 59 (Number of contracts per trade) Average Bid Offer Spread1 Tick 1 Tick1 Tick (Tick = 0.01%) Average Bid Offer Size3004001,200 (Number of contracts each side) Average Order book depth5,000 6,000 14,000 (contracts each side up and down 9 ticks) 1,648,000 Highly liquid fixed income futures markets
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8 Fixed Income Products - Comparison
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9 Growth in Eurex fixed income derivatives 0 100000 200000 300000 400000 500000 600000 700000 800000 199719981999200020012002 SchatzBoblBund * * Data as of Sep 2002
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10 Growth in 10-year fixed income futures Traded Contracts * Projected for 2002
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11 Intraday contribution of US members Based on trading data from January 2 - September 30, 2002
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12 Applications of Eurex fixed income derivatives Establishing quickly exposure on the bond yield curve all the way out to 10 years Managing interest rate risk of bond portfolios Relative value trades –“TED”-Spread trades –Curve trades –Cross-market trades Basis trades (arbitrage between German cash- repo and future market) Volatility trades (Delta neutral trading)
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www.eurexchange.com
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14 Attachments
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15 Trading Facilities available for Fixed Income Products Basis Trade Facility available for all fixed income futures Block Trade Facility (Block Trade Minimum Size) –Euro Schatz Future (4,000) –Euro Bobl Future (3,000) –Euro Bund Future (2,000) –Euro Bund, Bobl and Schatz Option (50) Vola Trade Facility –is available for all combinations of Eurex Fixed Income Futures and the corresponding options
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