Fixed income futures – March roll analysis

Similar activity to previous rolls with some irritation in the repo market

Fixed Income volumes for 2023 have been on par with the previous year. The roll into June saw similar volumes to previous rolls and was in line with that of March 2022. Open interest for all FI front month futures was either in line or lower than historical expirations, with futures calendar spreads traded at stable levels. Bund implied volatility remained range bound around the 10% mark and no front-month CTD switches were witnessed during the roll period, as was the case during the June expiry of last year.

In the week prior to the March 2023 futures expiry, the repo market experienced irritations in some of the CTDs. The bonds affected were the BKO 12/24 and the BTP 5/25, which traded rich for short periods (mainly S/N) prior to the last trading day but not over the delivery period. In the afternoon of March 2nd, we saw selling pressure across all CTDs and the calendar rolls cheapened into the last week of the roll. This allowed short positions to roll on cheaper levels.

Compared to the December and September 2022 rolls, activity for March 2023 started earlier to expiry. This is prominent for Buxl (FGBX), starting ten days prior to the last trading day. For the other futures, shifting open interest into the back month picked up speed only six days out. This is observable mostly in Bund (FGBL) and Schatz (FGBS).

For Jun 2023 expiries, CTDs changed in two of the core German segment - 5yr Bobl (FGBM) and 2yr Schatz (FGBS). While in the non-core segment, a CTD switch occurred in the 2yr BTP (FBTS). The 10yr Bund (FGBL), 30yr Buxl (FGBX), 10yr BTP (FBTP) and 10yr OAT futures (FOAT) did not witness a CTD change. All changes resulted in higher duration bonds with lower coupons being CTDs.

Trading volumes during the roll period (last eight days before expiry)

In addition to the contract roll, we saw significant activity in the outright markets. Aggregated trading volumes across expiries during the roll days grew by 12% YoY for all contracts combined. The highest trading volume increase was observed in the Schatz futures with +45% YoY.

In terms of deliveries, Buxl (with 9k) saw a higher number of contracts being delivered, up from 1k in December, while Bund saw a lower number of contracts delivered at 8k, down from 11k in the last quarter. In Bobls, participants increased the number of contracts going to delivery to 73k, up from 11k in December. The deliveries for short term BTP futures stood at 14k contracts and deliveries for total BTP futures occurred across three bonds. For more information on the delivery, please see here.

Calendar Spreads decreased slightly during the roll

Calendar Spreads narrowed throughout the roll period. In general, the spread decreased across all futures, with the last day of the roll having a narrower spread compared to the first.

German products experienced varying calendar spread differentials between the start and end of the roll period (Feb 27^th -Mar 8^th), with Schatz having the lowest (0.035), followed by Bunds (0.08), Bobls (0.09) and Buxl (0.16). In non-core Germany, the roll had a low differential for BTP futures (0.05), followed by OATs (0.08).