17 Feb 2021


The Italian yield curve and BTP derivatives during highly volatile (COVID-19) markets

How does one establish market continuity in times of a pandemic – that was the overall theme of a recently held webinar. The market experts Ashley Ball, Senior Fixed Income Trader at Mako Global, Dr. Luca Cazzulani, Co-Head of Strategy Research at UniCredit Bank Milan, Michelangelo Gigante, Head of Execution Desk at Eurizon Capital SGR, Andrea Stramentinoli, Head of Interest Rates Derivatives at Banca Akros S.p.A., Catherine Alexander, Fixed Income Sales at Eurex, and Jutta Frey-Hartenberger, Fixed Income ETD Product Design at Eurex tackled this topic with insightful presentations and opinions.

Moderator Francesca Dell’Era, Fixed Income Sales, Derivatives, Funding & Financing, Eurex, explained how the commitment of exchanges to stay open allowed for continuous and reliable price discovery during extremely volatile periods caused by COVID-19 shocks, lock-downs and interventions from the central banks.

Eurex’s trading and risk system again proved to be stable and able to effortlessly adapt and smoothly process the demands placed on it, managing record trading volumes which also led to an increased number of intraday margin calls. Jutta Frey-Hartenberger was part of the Market Continuity Task Force, a dedicated support team in charge of ensuring monitoring and handling of this special market phase, and during the webinar provided many insights on issues arising during this period and on the safeguards embedded in the Eurex system.

Luca Cazzulani’s study on "Rates markets: how have they fared through the Pandemic" showed that the industry has faced a global recession like no other in terms of magnitude and drivers, when quarterly GDP dropped by more than 10% in the OECD countries.

The difference to other crises, in his view, is that this one has been totally self-inflicted by political decisions. This is important, because it allowed for strong combined response by fiscal and monetary policy. He also found the reactions of policy makers very bold and impressive so far, as their combined response and plenty of liquidity in the euro area provided by the ECB have stabilized the sovereign yield curve. He expects these factors to also prevail in the next few years.

The high level of trading activities could, according to Luca Cazzulani, remain with us through 2021,

related to the ongoing presence of the ECB and that we are now in a situation of low yield, where all investors will be under pressure in this respect. He sees moderate room for spread tightening in BTPs, given the pandemic can be contained by vaccination.

Catherine Alexander’s presentation on the “Italian Yield Curve and the product development roadmap” showed how liquidity and reliability of BTP Futures and Options developed and helped to navigate through the challenging year. Fixed Income Futures volumes were elevated in Q1, but saw a severe correction in Q2. Suppressed volumes in Q3 stemming from the lack of volatility and a compression of the sovereign yield spreads. She focused on the Italian futures market segment and how, over the recent years, it has established itself as a liquid and reliable trading and hedging tool for Europe that remained stable and robust in 2020. There is a global customer structure at Eurex for Italian futures with the top 20 members accounting for over 65% and 76% of the volume in futures (FBTP and FBTS, respectively) and 97% in the BTP options, leading to a stable ratio compared to 2019.

For the future, she explained that Eurex will adapt its product roadmap continuously to benefit from structural market trends and concluded her presentation by giving an update on the “Next Generation EU-Bonds”and the successful launch of Euro-Buxl Options.

The presentations were followed by a panel discussion with the topic Dealing with volatility: what should investors keep on the radar. Challenges, tools and future scenarios”. The panellists reported how they and their respective companies have dealt with the market situation so far, compared liquidity of cash and futures markets during the turmoil and how investors have managed their exposure.

Eurizon’s Michelangelo Gigante said that, in his opinion, BTP Futures are the only liquid futures on “non-high-rating” bonds, also for Asia and US market. He also explained the difficulties while managing trading for 800 funds.
Further discussion points were topics like volatility and the current market environment from the market maker perspective of Mako’s Ashley Ball, the reliability of the different ways of trading during the different market phases, e.g. order book vs block trading or electronic vs voice trading,

The panel continued discussing the Options OTC market vs listed markets, with Banca Akros’ Andrea Stramentinoli, active in both areas, providing details on the trend this year and his view of further growing opportunities. As a final point, Jutta Frey-Hartenberger provided an outlook of what kind of impact the new NGEU bonds will have on the European capital market and the Italian market specifically.

All in all, a variety of topics were covered in this informative and insightful webinar. You can listen and watch to the complete webinar here