Quarter three has seen a more upbeat trading environment across the Fixed Income (FIC) portfolio compared to the previous quarter. The futures suite saw a robust pick up in volumes with French OAT’s and Schatz futures seeing the largest quarter-on-quarter (Q/Q) increase, +11.8% and +9.6%, respectively. However, when compared to the previous year’s Q3 data, volumes were circa 9.3% lower across the board. Underlying rates markets remained in tight ranges, with bouts of volatility being short and tense. The options portfolio saw Q/Q growth in Bobl, BTP’s and weekly Bunds, +88%, +50% and +130%, respectively. FIC volatility remains at historically low levels despite the event risk of U.S. elections. However, in the OTC vol space, the USD 10y swaption vol was implying a large one-day event risk on election day. This is like the levels seen in the 2016 Brexit referendum in GBP volatility. The higher vol filtered into EUR towards the end of the quarter, but support quickly faded and we experienced further downward pressure on vol. As we move into the final quarter of the year, the uncertainty around the election outcome concerns mostly the shaping of the fiscal policy and its potential impact on growth. The focus for rates markets remains anchored to the possibility of a disorderly transfer of power post-election, e.g., triggering risk-off sentiment. We have seen a reshaping of vol skew, which may help to support volumes pre and post the event risk.
Towards the end of the quarter, the team launched options on Buxl futures, which has seen circa +3k contracts trade in the first few days of trading. The team is hopeful that we will see this momentum develop throughout Q4.
Concerning the fixed income futures roll, the expiry was on 8 September. However, most of the roll activity was completed before Monday's U.S. Bank holiday.
Looking at the volume development, the last seven days of the roll were the most active. By 4 September, most roll activity in FI futures was completed, with less than 10% of the open interest needed to be rolled to the 20 December expiry. This roll happened at a faster pace than the previous rolls. This acceleration was due to the U.S. bank holiday on 7 September, as North American clients had one day less to trade the roll.
The September roll did not see many changes in CTDs, and in this regard, it was not as exceptional as the June 2020 roll, which saw all German futures changing CTD at the same time. In September, only changes to the FGBS and FGBM CTD took place.
Looking towards the final quarter, there is sufficient event risk for the market to digest, which should support volumes into year-end.
Lee Bartholomew, Head of Fixed Income Product R&D, Eurex
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