10 Jan 2022


Fixed Income market briefing January 2022

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

I’d like to take a moment to start the review of 2021 by thanking our members and end clients for all their support throughout the year. Your continued support across our existing portfolio and new initiatives underpinned our solid performance in 2021. The past year started from a strong basis, with the long end of the curve providing investors with early opportunities. Buxl futures and options saw double-digit growth, seeing year on year growth of 47.3% and 478.6%, respectively.

The futures suite saw volume growth of 13.6% compared with 2020. Bund and Bobl futures saw an increase of 16.2% and 17%, respectively, versus 2020. The front end of the curve underperformed relative to the rest of the curve, with Schatz volumes decreasing 9.6% YoY. The Italian and French segments continued to see solid year-on-year growth, with the 10y sectors up 21.3% and 28.3%. The front end of the Italian curve saw volumes 15.6% higher versus 2020. The main themes of 2021 look set to continue into 2022, with central banks looking to accelerate tapering as inflation remains an ongoing concern. This, in turn, is putting pressure on central banks to raise rates, with the U.K. raising rates at the back end of 2021 and the Fed expected to raise rates in 2022. This divergence, together with the risk of a potential equities’ correction, underpinned volatility.

The two-way price action in markets and divergence amongst central banks helped to support volumes in our options portfolio throughout 2021. With the aggressive flattening of 10s30s swaps in the first half and higher realized volatility in the long end, Bund and Buxl options continued to outperform in 2021. Volumes were 32.1% and 478.6% higher compared to 2020. Weekly options on Bunds saw an increase of 58.6%. As yields bounced, the belly of the curve was the main benefactor and Bobl options witnessed an increase in volumes of 106%. The Italian and French segments did not perform as strongly as futures, seeing a decline in volumes of 20% and 58%, respectively.

2021 further provided the team with opportunities to drive product innovation and we successfully launched Fixed Income ESG derivatives in September. In the first quarter of the launch, we traded over €350m in notional, with €150m of notional value trading in December alone. Incidentally, the largest single trade (300 lots) also took place in December. This is a segment that the team is working hard to develop to ensure that we are the leading liquidity pool for Fixed Income ESG derivatives. Together with our members and clients, we hope to bring more innovative solutions to the market through 2022.

With this, I would like to wish all our members and clients a happy, healthy, and prosperous 2022. The team looks forward to working closely with you in the years ahead.