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Market briefing
Looking back on the third quarter of this year, I'd say that global markets have held up well. Although we have seen implied volatility remain range bound, volumes across the board increased year-on-year (YOY). Periphery futures and options contracts have benefited from regional geopolitical and event risks, together with short-term spikes in volatility. The September sell-off saw strong volumes across the core benchmark products including futures and options. Bund volatility continues to trade in the 4%-6% corridor and open interest (OI) is +20% YOY.
Volatility remains heavily directional with the speed of sell-offs and the macroeconomic picture makes it clear that Fixed Income markets are taking their direction from equities. Across all asset classes, volatility remains in tight ranges. Central banks have acknowledged that data remains skewed to the upside with inflationary pressures seeping into prices. The November Fed meeting is priced in by the markets with most of the attention on whether the hawkish rhetoric from the BoE will lead to a 25 bps rise before year-end. Interestingly, the moves seen in pound sterling have largely benefitted from the depreciation of the US dollar. The market looks happy being in a 1.31 - 1.36 corridor.
From a product perspective, it has been a busy time for the team having introduced a number of products this quarter. In early September, the Corporate Bond Index Futures were launched and I'm genuinely looking forward to seeing this contract take off. At the end of the quarter, options on Italian BTPs were launched which has seen OI of 4,500 contracts in the first week of trading and ADV of 2,000.
Looking ahead to Q4, confusion and uncertainty after the Catalan referendum vote has failed to drive volatility higher (unlike in the situation after the French general elections) and Bund swap spreads have also been relatively steady which leaves the market seeking its next catalyst.
Lee Bartholomew, Head of Fixed Income & FX Product R&D, Eurex
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