Fixed Income market briefing June 2023

From a volume perspective, May continued April’s trend and volumes were, overall, subdued. Despite there being adequate event risk, Fixed Income markets exhibited a risk-off tone, with volumes lower across the board. In my January note, I pointed out that we expected headwinds at certain points in the year and April and May provided those. Having said this, we are measuring the performance of the business against a very strong 2022, where volumes were elevated and event risk higher. May was an extremely busy month for the team, working hard behind the scenes on our STIR initiative, a key milestone for the business.

Credit was another area of focus that has been fascinating to be part of. We held a joint buy-side event in Paris with one of our key partners, creating a great opportunity to engage with our clients on this important segment. We are committed to building out the credit area and are playing the long game. It was a well-attended event where we could interact with our partners and clients to discuss trends, market insights, our roadmap, and the challenges and opportunities that credit offers. Moreover, it was an opportunity to learn from one another, which is always humbling and gives us things to think about. The pipeline of end clients is encouraging, and the team is doing a tremendous job in working with the market on the topic. We hope this will position the business for accelerated growth in H2, but more importantly, accelerates the development of the liquidity pool for the end-clients. This is really at the core of everything the team is working on.

Another part of the team’s focus was executing the small details that can enable success in Q3 and Q4. We continued to focus our attention on client readiness across the key initiatives, ESTR futures, Credit futures and FX. Across all three, we made solid progress by onboarding new clients who already started trading. The key is to build on this momentum, and we are confident that this will feed into the trading numbers as we progress in H2.

In FX, the key focus area was client activation and working with our sell-side partners on readiness. We held buy-side events in Hong Kong and Frankfurt, which marked the start of a series of other buy-side happenings over the coming months around the globe. June is shaping up to be an exciting month in this respect and clients are testing the pipes, so to speak. As a team, we are big believers in ensuring that the initiatives we build have longevity. Balancing this while developing new products is always a constant challenge, but one that drives the team forward. One aspect that, we feel, differentiates our approach is our collaborative way of engaging with our stakeholders. From a business performance perspective, there were green shoots within FX where EUR/GBP, EUR/JPY and EUR/CHF all saw significant volume growth, 119%, 484% and 127%, respectively. I acknowledge that we are starting from a small base. However, we are trending in the right direction, which is what we will continue to focus on.

In core rates, again, there were pockets of sunshine, namely the Italian segment and the front end of the German curve in the options. The short- and long-term BTP futures saw 4.7% and 7.3% higher volumes compared to May 2022. Schatz options were 60.8% above May 2022 numbers. Weekly options on Bund also outperformed, with volumes 25.7% higher vs. May 2022. The rest of the business underperformed relative to the same period last year, albeit 2022 was a very strong year; hence the benchmark was high. Overall, the business continues to perform strongly, and the team is committed to executing the initiatives on our roadmap.

There are several exciting initiatives in the pipeline that we feel will help to drive the business forward. The focus for the remainder of Q2 is on the execution of our strategy. That is to create critical mass within our STIR, FX and credit segments. In addition to those three key pillars, we will continue to assess the best time to bring new rates products to market.

This week, the team announced, with the support of key strategic partners, the launching of our STIR initiative. Before I share a few words on this, I’d like to thank all our partners (BNP Paribas, Deutsche Bank, Goldman Sachs, JP Morgan and LBBW) for their support in bringing this to life. The team worked around the clock to make this happen, and I am humbled and proud of the support we have. We are not under any illusion; the hard work starts now, and we are committed to executing our ambition to be the incumbent exchange for Euro-denominated derivatives for our global client base. The initiative is a natural extension of our partnership approach within IRS and Repo while completing our product offering within listed derivatives.

Launching ESTR futures was the initial step on this journey and volumes have been trending significantly higher throughout the month. The key focus on ESTR is client readiness which the team is making solid progress on. Having a diverse ecosystem at inception has been critical. We have a healthy number of liquidity providers and are grateful for their support. They will be key for the next stage, which is relaunching Euribor futures and options. Creating a framework where all the stakeholders can benefit will help the business to accelerate the development of this segment within Eurex. The value proposition being created is significant for our clients and the market. The margin benefits from an integrated product offering are meaningful and it makes, together with our ability to iterate on new products and services, for a compelling and unique proposition. There will be more in subsequent updates, and I am committed to being open and transparent in communicating with you on this topic.

Last but by no means least, I would like to thank all our colleagues and the team for making this a reality. The team has done a great job pulling this together—a huge thank you to all. This team is making my role very easy, and they can be proud of their efforts; I know I am!.