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Eurex | Eurex Clearing
Political uncertainty in Italy continues. We at Eurex provide the right tools to navigate this environment. We talked to Byron Baldwin, Deputy Global Head, Fixed Income Trading & Clearing Sales at Eurex, who gave us an update on recent developments.
Byron, there is something interesting going on in the Fixed Income market.
Yes, indeed. The spread between Italian and Spanish government debt has reached an all-time high.
Why is that?
Given the political situation in Italy, investors prefer Spanish government debt. We will see how this develops, but this is where we stand.
What do we offer our clients in this market environment?
Eurex provides a very efficient and leveraged means of trading the Ten Year Spanish versus Italian Government Bond Yield Spread with the cheapest to deliver for December delivery being BTP 4.75 percent 09/28 and SPGB 1.45 percent 10/27 for the Eurex Euro-BTP Futures and Euro-BONO Futures, respectively. This gives a duration-weighted ratio of 100 Euro-BTP Futures to 80 Euro-BONO Futures based on the BPV of a Bond Future being BPV CTD / CF CTD. Eurex’ Trade Entry Services (TES) can be used to execute the BTP/BONO yield curve spread off exchange. The Block Trade facility can be used to execute one side of the trade – both Euro-BTP and Euro-BONO Futures have a minimum size in the Block Trade facility of 250 contracts. Then this becomes the qualifying transaction in the EFP facility to execute the other side of the trade.
Anything else?
There also is the benefit of reduced margining of initiating the spread with Eurex' innovative Prisma cross product and portfolio margining system with Euro-BTP and Euro-BONO Futures margined within the Fixed Income Liquidation Group. The margin savings of trading the Eurex Ten Year Italy BTP Futures (Long-Term Euro-BTP Futures) versus Euro-BONO Futures yield spread are significant under Prisma portfolio margining. Savings are between 67 percent and 57 percent, depending which way you initiate the spread, compared to the IM of the two individual positions.