02 Nov 2020


Fixed Income market briefing November 2020

October has seen a more upbeat trading environment across the fixed income (FIC) portfolio compared to September. The futures suite saw a robust pick up in volumes +6.7%. Within the core German futures segment, Schatz and Buxl futures had a month-on-month growth of 37.9% and 37.7%, respectively. Buxl futures volumes were the benefactors of flows from the launch of Buxl Options, which saw c.21k of contracts trade in the first month. Total volumes in the newly launch Buxl options are c.28.5k (1k ADV). However, in the options segment, volumes were lower across the board, with the main bright spots being the newly launched Buxl options and bund weeklies (+55.99%). Underlying rates markets have remained in tight ranges, with bouts of volatility being short and tense. FIC volatility remains at historically low levels despite the event risk of U.S. elections; however, we have experienced further downward pressure on volatility. The focus for rates markets remains anchored to the possibility of a disorderly transfer of power post-election, e.g., triggering risk-off sentiment.

Delving further into Buxl options, the team has been quietly optimistic about the development of volumes. The Central Limit Order Book (BLOB) has been a build-up in executable sizes, with quotes between 50 to 100 contracts. The spreads are somewhat wider than what we see in Bunds options, but that is to be expected given the level of volatility in the long end of the curve. Open Interest (OI) has been progressively building, with bid/offer spreads 7-15 percent wide depending on the moneyness of the options. The volume development has been relatively balanced, with several trades executed as part of multi-leg structures via put spreads or butterflies. In the front month, we have seen executable pricing in trades in 500 lots and higher, demonstrating that the product is additive to our members' tool kit.

At this point, we would like to extend our gratitude to our members for supporting the launch; it is greatly appreciated. Looking ahead into year-end, it seems there is enough for the market to digest concerning event risk, which should support volumes

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

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