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February saw the tailwind of safe haven flows from the coronavirus outbreak as investors rotated out of equities and into bonds. The first tentative signs of the virus spreading in Europe saw volumes in our core benchmark futures spike. Volumes were strong across the curve, with Buxl futures the outperformer in the German benchmarks, up 86% month-on-month (M-o-M). The Italian and French segments continued to see robust M-o-M growth (+31%, +19% and +16.9%). These are two sectors that continue to grow and is testament to the liquidity picture that members have provided in volatile markets. As we moved into the final stages of the month, volumes continued to increase as the race to lower yields, fueled by safe haven flows and a repricing in U.S. markets of Fed intervention, kept pace. This has seen volumes in both futures and options reach new highs as we enter March. In February, weeklies on Bund options were the standout performer, up over 282%. Options on BTP futures were a close second on the month, seeing 54.7% M-o-M growth.
What we saw in February, is that the market was comfortable to play out the reaction to COVID19 in futures. This was largely owing to the picture seen in the OTC space, with volatility grinding higher but volumes lower in comparison to underlying swaps and futures markets. In the OTC space, moves higher were seen in the top left of the grid. March is seeing a pickup across the board.
Looking to other Eurex markets and product segments in the portfolio, ETF options offer investors an alternative liquidity pool to the core benchmark products. Option-adjusted spreads in European and U.S. high yield have risen 160bps and 214bps respectively, however much of this has been driven by the fall in sovereign yields. Eurex ETF options on the iShares EUR High Yield Corp Bond UCITS ETF and the iShares USD High Yield Corp Bond UCITS ETF can provide investors with downside protection against potential further falls in the high yield bond market with put options. Both iShares high yield ETF underlying’s have both fallen circa 8% respectively year to date (YTD) versus the larger falls in respective equity markets.
Lee Bartholomew, Head of Fixed Income Product R&D, Eurex