On Tuesday, 29 May, MEFF will launch a new futures contract on a Spanish 10-year Notional Bond based on long-term Spanish Government bonds.
The introduction of this contract meets the need for hedging instruments specifically for Spanish government debt and the contract will be explicitly supported by six institutions who have committed to act as liquidity providers. Banco Popular, Bankia, Bankinter and CECA will commence on the first day of trading; Banco Santander and BBVA will commence at a later date. These institutions will quote the first expiration, with a maximum spread of 80 points, provided that market conditions will allow this, at their own discretion.
The Notional Bond futures will provide fixed income fund managers and traders with the opportunity to use various investment and/or trading strategies:
- Increase or decrease the exposure to Spanish government debt in a bond portfolio for a certain time by buying or selling futures and without needing to buy or sell bonds in the cash market.
- Spread trade between two different government bond futures contracts, by buying one contract and selling the other one, based on a particular view ofthe spread.
- Cash-Futures arbitrage transactions.Adjustments to the duration and sensitivity of a bond portfolio.
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