Fixed Income market briefing January 2024

As we enter 2024, there is much to be excited about. The pipeline of initiatives for Q1 is solid, and we will introduce new products within the STIR and Credit segments. Our focus is on building on the momentum of 2022/2023 while developing the new segments and strengthening our core franchise. As a business, our goal is to execute on our long-term strategic objectives, which are STIRs, FX, and Credit. Naturally, we will need to adjust along the way, giving ourselves the flexibility to tactically adapt to opportunities, such as strengthening our options franchise with additional products.

Our STIR segment ended the year strongly, with c.775k €STR futures contracts traded and c.1.5m Euribor contracts traded in December. We will continue to work with our partners, members, liquidity providers and end clients to build out this segment. There is a strong focus on client activation, which we are confident will start to translate to an increase in open interest (OI). In Q4, we had c.3m, c.1.72m, and c.192k of Euribor, €STR, and SARON futures traded contracts, respectively.

In currencies, we are focused on enhancing our liquidity provider scheme to give us the best chance of success in 2024. We will continue to engage with clients on activation and migration of risk to Eurex and work alongside 360T to strengthen our product and service offering. Overall volumes in the fourth quarter (Q4) were marginally lower (2.1%) than Q4 2022. There were some bright spots, namely USD/KRW and EUR/JPY, which saw volumes increase by 12.3% and 98.3%, respectively. Within FX, we need to focus on making those small adjustments, for example, around our LP scheme, to help accelerate our overall performance within the segment. 

Credit is another focus area for our team, and we will introduce new underlyings in Q1, namely EM and GBP. We will also add USD to our portfolio closely thereafter. Our ambition is to be the Global venue for listed credit derivatives. Overall, volumes in Q4 were mixed. Euro High Yield index futures saw an increase of 226% in terms of volumes and our Euro IG corporate bond index futures saw a reduction in volume of 26.3% compared to Q4 2022. There are several initiatives outside of products of which we are confident will help us to accelerate the volume development in this segment.

In the broader business context, we had a strong Q4, especially when compared to Q4 2022. Futures and Options volumes were c.30.4% higher when compared to the same period last year. December was a strong month within the futures segment, with volumes 21% higher compared to December 2022, largely driven by a supportive macro environment. On average, average daily traded volumes were c.3.7m contracts.

In terms of the year ahead for FIC, I think Europe and Eurex are positioned to benefit further from the broader macro rate environment. Credit is an area where spreads are not pricing in enough default risk, which presents both an opportunity and a risk. Positioning in rates is somewhat crowded and it will be interesting to see how this evolves in Q1. Volatility in Europe is still relatively benign, and therefore, there is a risk that people are under-pricing risk. Event and geopolitical risks remain high for Q1 and there will be a lot of focus on corporate earnings in January, giving our team confidence that January should see a continuation from December.

As stated at the top, there is much to be excited about for 2024, and I am confident in the team and its ability to deliver on its ambitions. We are committed to continue building out our new segments while strengthening our core franchise. We will continue to work closely with our members, partners, liquidity providers and end clients. More importantly, we will continue to listen and adapt. Our success is very much our clients’; hence, a huge thank you from the entire team for your support throughout 2023. 

In the coming weeks, the team and I look forward to meeting and catching up with our members, liquidity providers and clients on the roadmap for the year, together with addressing their challenges and engaging on priorities.