European Fixed Income Markets

Heike Eckert

FIA Expo 2002

November 7, 2002

2

Developments in the European government bond market With the European Monetary Union the Euro denominated

Government Bond Market became one of the biggest debt securities market worldwide

Design of European bonds was harmonised as much as possible

– Interest rate calculation was changed to Actual/Actual

– Coupons were paid on a yearly basis (except Italy and some short term government bonds in Spain, Portugal and Greece)

– Settlement periods were set to T+3 days where possible

Spread differentials diminished significantly, but did not disappear completely (see next slide)

Therefore a homogeneous European Government bond yield curve did not exist

3

Convergence of European yield differentials based on German bond yields

-0,50

-0,25

0,00

0,25

0,50

0,75

1,00

1,25

1,50

1,75

2,00

2,25

Jan

97

Ap

r 9

7

Jul 9

7

Okt

97

Jan

98

Ap

r 9

8

Jul 9

8

Okt

98

Jan

99

Ap

r 9

9

Jul 9

9

Okt

99

Jan

00

Ap

r 0

0

Jul 0

0

Okt

00

Jan

01

Ap

r 0

1

Jul 0

1

Okt

01

Jan

02

Ap

r 0

2

Jul 0

2

Month

Inte

res

t R

ate

s

France Netherlands Itlay Spain

4

German fixed income markets

Benchmark Status

Underlying Cash Market

Repo Market

Exchange traded

derivatives

German Government

Bonds

Bund- Bobl-, Schatz- Repos

Bund-, Bobl,-Schatz-Futures

Market Size

Transparency

Standardisation

Quality

Reliability Liquidity

5

Success of Eurex fixed income futures

Used as a standard reference when comparing and evaluating fixed income securities in Europe

Combined with the strength of the Eurex trading and clearing system

– member network, reliability, transparency, costs, integrated clearing house

– availability of whole German yield curve

Liquidity has increased to an incomparable level

Eurex Bond Futures have developed to the world´s leading Interest Rate Contracts

6

Demand for Euro Bund Future worldwide

GREAT BRITAIN

USA

FRANCE

GERMANY

Other European

0

20

40

60

80

100

120

140

160

180

Tra

ded

Co

ntr

acts

(in

millio

ns)

7

Bund Bobl

Schatz

Average Traded Volume 764,000 453,000 431,000

(Number of contracts per day)

Average Trade size 23 28 59

(Number of contracts per trade)

Average Bid Offer Spread 1 Tick 1 Tick 1 Tick

(Tick = 0.01%)

Average Bid Offer Size 300 400 1,200

(Number of contracts each side)

Average Order book depth 5,000 6,000 14,000

(contracts each side up and down 9 ticks)

1,648,000

Highly liquid fixed income futures markets

8

Fixed Income Products - Comparison

Settlement Price on 09/30/02

114-08 115-29 112.75 109.95

Contract Value

Minimum Price Movement

1/32 of a point, equivalent to $31.25

One half of 1/32 of a point, equivalent to $15.625

Transaction Cost per side

Average Daily Volume in 2002

226,404 361,106 764,104 453,213

Open Interest on 09/30/02

492,521 948,810 720,205 517,365

Trading Hours US Central Time

30 Year US T-Bond Future Euro Bund Future Euro Bobl Future10 Year US T-Note Future

Open Outcry : 7:20am to 2:00pm a/c/e : 8:00pm - 4:00pm

1:00am - 12:00pm

$ 100,000 € 100,000

0.01 percent, equivalent to € 10

€ 0.20$0.20 for a mmeber and $1.25 for a non member.

9

Growth in Eurex fixed income derivatives

0

100000

200000

300000

400000

500000

600000

700000

800000

1997 1998 1999 2000 2001 2002

Schatz Bobl Bund

*

* Data as of Sep 2002

10

Growth in 10-year fixed income futures

0

20.000.000

40.000.000

60.000.000

80.000.000

100.000.000

120.000.000

140.000.000

160.000.000

180.000.000

200.000.000

1997 1998 1999 2000 2001 2002 *

Bund 10yr US Treasury Note Long Gilt

Tra

ded

Con

trac

ts

* Projected for 2002

11

Intraday contribution of US members

Based on trading data from January 2 - September 30, 2002

0

2.000.000

4.000.000

6.000.000

8.000.000

10.000.000

12.000.000

14.000.0002

to

2:3

0

2:3

0 t

o 3

3 t

o 3

:30

3:3

0 t

o 4

4 t

o 4

:30

4:3

0 t

o 5

5 t

o 5

:30

5:3

0 t

o 6

6 t

o 6

:30

6:3

0 t

o 7

7 t

o 7

:30

7:3

0 t

o 8

8 t

o 8

:30

8:3

0 t

o 9

9 t

o 9

:30

9:3

0 t

o 1

0

10

to

10

:30

10

:30

to

11

11

to

11

:30

11

:30

to

12

12

to

12

:30

12

:30

to

13

US Eastern Time

Tra

ded

Co

ntr

acts

per

half

ho

ur

0,00%

4,00%

8,00%

12,00%

16,00%

20,00%

24,00%

US

Co

ntr

ibu

tio

n i

n %

BUND BOBL SCHATZ US share in %

12

Applications of Eurex fixed income derivatives

Establishing quickly exposure on the bond yield curve all the way

out to 10 years

Managing interest rate risk of bond portfolios

Relative value trades – “TED”-Spread trades

– Curve trades

– Cross-market trades

Basis trades (arbitrage between German cash- repo and future

market)

Volatility trades (Delta neutral trading)

www.eurexchange.comwww.eurexchange.com

14

Attachments

15

Trading Facilities available for Fixed Income Products

Basis Trade Facility available for all fixed income futures

Block Trade Facility (Block Trade Minimum Size)

– Euro Schatz Future (4,000)

– Euro Bobl Future (3,000)

– Euro Bund Future (2,000)

– Euro Bund, Bobl and Schatz Option (50)

Vola Trade Facility

– is available for all combinations of Eurex Fixed Income Futures and the

corresponding options