26
25
35
30
25
20
15
10
5
0
Spread Futures
VSTOXX® Futures
VIX Futures
Mar 2015
Apr 2015
May 2015
Jun 2015
J
ul 2015
Aug 2015
Sep 2015
Oct 2015
Nov 2015
Dec 2015
Possible Greek bank
withdrawal freeze
DJIA opens 1,000
points lower
Chart 6:
Daily prices of VSTOXX® Futures, VIX futures and VSTOXX® Futures / VIX futures spread
3 Mar 2015 to 31 Dec 2015
Monday 24 August 2015 the Dow Jones Industrial Average
opened 1,000 points lower. The declining U.S. equity markets
triggered a decline in global equity markets and rallying of
volatility indexes. The VSTOXX
®
Futures / VIX futures spread
came close to going negative at 0.925 on 25 August 2015.
The price of the spot spread actually did go negative at
2.3715. This narrowing of the spread may be attributed
to the VIX futures rallying faster than VSTOXX
®
Futures.
As noted in Table 2 the futures spread price is negative
0.7 percent of the time. Only 11 percent of the time is the
futures spread priced below 2. The price didn't remain low
for long. By 2 September 2015, the spread price rallied above
5 as VIX futures declined faster than VSTOXX® Futures.
45
40
35
30
25
20
15
10
5
0
Spread Futures
VSTOXX® Futures
VIX Futures
Jan 2010
Feb 2010
Mar 2010
Apr 2010
May 2010
J
un 2010
J
ul 2010
S&P cuts
Greek debt
t
o junk
Chart 5:
Daily prices of VSTOXX® Futures, VIX Futures and VSTOXX® Futures / VIX Futures spread Jan to Jul 2010
Source: Bloomberg data
Source: Bloomberg data
50
40
30
20
10
0
J
an 09
VIX Futures
VSTOXX® Futures
Spread Futures
J
an 09
J
an 10
J
an 11
J
an 12
J
an 13
J
an 14
Jan 15
Jan 16
J
ul 10
J
ul 11
J
ul 12
J
ul 13
J
ul 14
J
ul 15
J
ul 16
Chart 4:
Daily prices of VSTOXX® Futures, VIX futures and VSTOXX® Futures / VIX futures spread
2 Jun 2009 to 9 Nov 2016
Table 2 lists the average, median, maximum and minimum
VSTOXX®/VIX spread price and the frequency of how often
the spread price is either above or below a specific spread
price. For example, 0.8 percent of the time the spot spread
price is above 14. The pricing and the frequency of spot
versus futures VSTOXX®/VIX spreads are similar. VSTOXX®
Futures began trading 2 June 2009, which is the starting
date of this analysis to compare the spread statistics of the
spot price to the futures price.
Chart 4 shows the daily prices of VSTOXX
®
Futures, VIX
futures and VSTOXX
®
Futures / VIX futures spread since
inception of the VSTOXX
®
Futures contract. It is very similar
to the spot prices in Chart 2.
27 April 2010 Standard and Poor's downgraded the Greek
debt to junk and downgraded the sovereign debt of
Portugal. It was only a few weeks earlier the Greek debt was
previously downgraded 1. As this occurred both volatility
indexes rallied, but VSTOXX
®
Futures lead the way and
maintained a widening premium over VIX futures causing
the spread to go from 2.72 on 21 April 2010 to exceed
a spread price of 10 by 7 May 2016.
A spread price in the teens is considered a tail event and
usually is difficult for that price to be sustained for an extended
period of time (as noted in Table 2). In Chart 5 the price
traded in a range around 10 to a range around 5 a few times
before finally narrowing. By 19 May 2010 the volatility
indexes peaked and began a slow decline into the summer
months. And the spread also declined into early July.
In the spring / early summer of 2015 the spread was gradu-
ally widening (Chart 6 ) due to rumors of controls on
the Greek banks. During this time VIX futures remained stable
hovering around 15 while VSTOXX
®
Futures traded both
higher and lower due to the increased European uncertainty.
This triggered the VSTOXX®/ VIX spread to widen and narrow.
Table 2:
Statistics of daily spot and front month futures of VSTOXX®/VIX spread 2 Jun 2009 to 9 Nov 2016
Avg
5.5
4.7
Median
5.0
4.4
Max
20.53
17.78
Min
2.70
1.88
< 0
0.9%
0.7%
< 2
7.5%
10.9%
> 8
18.9%
10.2%
> 11
3.6%
0.8%
> 14
0.8%
0.1%
Spot
Futures
1 http://money.cnn.com/2010/04/27/news/international/Greece_debt_downgraded/index.htm
Source: Bloomberg data
Source: Bloomberg data
EURO STOXX 50® Corporate Bond Index Futures
With the EURO STOXX 50® Corporate Bond Index Futures,
Eurex new corporate bond index future provides buy-
and sell-side participants with a versatile hedging instrument
to manage their credit risk exposure and replicates some
of the exposure within their portfolios.
The Corporate Bond Index Future is a cash settled index
future with a quarterly expiry and the unique advantages
of an exchange traded, straight-through processed and
centrally cleared product. As it has the structure of a standard
Eurex index future, the new product can be easily added
to existing infrastructure.
5
4
Corporate Bond Index Futures
EURO STOXX 50® Corporate Bond Index
STOXX launched the Corporate Bond Index in April 2016.
It is based on the debt of the constituents of the benchmark
EURO STOXX 50® index, and is the only index that tracks
the performance of investment grade, EUR-denominated,
corporate bonds of the EURO STOXX 50
®
constituents.
Tailored index methodology, real-time calculation every
minute and on independent data source guarantee quality
of valuation services and improved market transparency.
Key benefits
Futures alternative
An unrivalled trading and hedging alternative in the Euro-
pean corporate bond market, Corporate Bond Index Futures
serve as a proxy for the debt of the EURO STOXX 50®
constituents as alternative to existing benchmarks such
as CDS.
Optimized portfolio management
Reduce tracking risk as well as help generate leveraged
access to corporate bond beta as a portfolio overlay.
Operational efficiency
Improve daily operational procedures (e. g. cash bond
settlement procedure).
Supports the development of structured products
Offers banks that sell bespoke and structured products
an efficient hedge.
Spread trading opportunities
A liquid instrument to trade Eurozone corporate debt versus
European sovereign debt or versus EURO STOXX 50
®
equity
index futures. Exchange for Physicals (EFP) Services allow
for the simultaneous purchase /sale of futures along with
a sale / purchase of other futures contracts.
Block Trade Services
In addition to the Central Limit Orderbook (CLOB),
Corporate Bond Index Futures trades can also be agreed
bilaterally, and subsequently registered via Eurex' T7
Entry Services. The minimum block trade threshold is
100 contracts (does not apply to EFP).
Vendor codes
Currency
EUR
Currency
EUR
Index type
Price
Index type
Price
ISIN
DE000A0QZJL9
ISIN
DE000A2GF978
Bloomberg
SX5BPI Index
Bloomberg
CBIA Index
Reuters
.
SX5BPI
Reuters
0#FCBI:
Product type
FINX
Product code
FCBI
Underlying instrument
I
ndex
EURO STOXX 50
® Corporate
Bond Index
Eurex products
Product name
Future on EURO STOXX 50
®
Corporate Bond Index
Contract specifications
EURO STOXX® 50 Corporate Bond Index Futures
EURO STOXX 50® Corporate Bond Index (price index, EUR), corporate bonds from companies
that are constituent of the EURO STOXX 50® index at the time of rebalancing.
FCBI
EUR 1,000 per index point (about EUR 100,000 in notional)
In points with two decimal places / 0.01 points = EUR 10
The three nearest quarterly months of March, June, September and December cycle
Cash settlement, payable on the first exchange day after following the expiration day
The third Friday of each maturity month if this is an exchange day at Eurex; otherwise
the exchange day immediately preceding that day; close of trading in the maturing futures
on the last trading day is 19:00 CET.
Final settlement day is the exchange day immediately following the last trading day.
Based on EURO STOXX 50® Corporate Bond Index (price index, EUR) closing level
on the last trading day
Determined from the volume weighted average of all transactions during the minute before
17:15 CET (reference point), provided that more than 5 trades are transacted within this period.
Order book 08:00 19:00 CET
Off-book
08:00 19:00 CET (Eurex T7 Entry Services)
09:00 17:15 CET
Allowed. Minimum Block Trade size: 100 lots
Contract standard
Product code
Contract value
Price quotation / tick size / tick value
Contract months
Settlement
Last trading day
Final settlement day /expiration day
Final settlement price
Daily settlement price
Trading hours
Market Making
Block Trading
"
"
With the introduction of Corporate Bond Index Futures, Eurex has
a unique, exchange-traded offering for the corporate bond segment
in Europe.
Lee Bartholomew, Head of Fixed Income & FX Product R & D, Eurex
Today, the corporate bond market plays a key role in facilitating economic growth, productivity
and employment in Europe. This is reflected in the constant growth of outstanding corporate debt
in the Eurozone. The recent strong inflows into bond ETFs come after the asset class emerged
as the top-seller in 2016, with European-listed bond ETFs drawing in a net EUR 9.1 bn over 12 months.
At the same time, European corporate bonds have benefited from the ECB's Corporate Sector
Purchase program, including European non-financial bonds.
6
Corporate Bond Index Futures
a new asset class emerges
The first listed futures tracking Eurozone credit open up significant possibilities
in a changing market.
An interview with Lee Bartholomew, Head of Fixed Income & FX Product R&D and
Jan-Carl Plagge, Head of Applied Research at STOXX.
All these changes are creating a need for new and efficient
instruments to hedge and manage portfolios in the credit
market, according to Lee Bartholomew, head of fixed income
and foreign exchange product development at Eurex.
"European credit markets are undergoing significant change,
and traders and investors are likely to welcome the advan-
tages that having exchange-traded futures brings," said
Bartholomew. "Additionally, the bond-index futures will
benefit from their direct link to a well-established benchmark
such as the EURO STOXX 50
®
Index."
A blue-chip benchmark for Europe's credit market
The EURO STOXX 50® Corporate Bond Index includes
investment-grade, euro-denominated bonds issued
by EURO STOXX Index members and their subsidiaries.
All eligible bonds must have a remaining maturity of
at least 15 months and a minimum nominal amount out-
standing of EUR 750 million, improving investability.
Only fixed- and zero-coupon issues are included. Subordi-
nated debt is excluded.
The index is weighted by market capitalization, and has
a unique capping methodology to avoid concentration
risk or bias: any constituent issuer is capped at 20%, while
the weight of single industries is capped at a maximum
of 40%.
"The Corporate Bond Index follows the rules-based and
transparent philosophy that is common with all STOXX
products," said Dr. Jan-Carl Plagge, Head of Applied
Research at STOXX . "The index methodology aims at
offering investors access to the Eurozone corporate
bond market while being very mindful towards issuer-
and industry diversification."
"A key edge of the EURO STOXX 50
®
Corporate Bond
Index over individual bonds is the availability of real-
time pricing," Plagge added. The Corporate Bond Index
i
s calculated based on by-the-minute continuously
evaluated prices, which allows for high quality price
determination of the index portfolio.
A hedging and trading alternative
Eurex had corporate bond desks, portfolio managers,
risk desks and traders of exchange-traded funds (ETFs)
in mind when designing the new contracts. "With the
EURO STOXX 50
®
Corporate Bond Index Futures, Eurex
new corporate bond index future provides buy- and
sell-side participants with a versatile hedging instrument
to manage their credit risk exposure and replicates some
of the exposure within their portfolios", said Bartholomew.
"Through the Corporate Bond Index futures, money man-
agers can gain exposure to a single basket of the region's
most liquid and representative bonds issued by blue-chip
companies," Bartholomew added, "eliminating the cost and
heavy due diligence incurred in the selection of individual
debt instruments." The contracts also offer banks that sell
bespoke and structured products an efficient hedge.
The Corporate Bond Index futures which have a quarterly
expiry represent an alternative to existing benchmarks,
i.e. credit default swaps (CDS), which carry an inherent
counterparty risk and potentially larger tracking error
relative to bond markets.
A plug-and-play product
"The trading community appreciates that these are straight-
through processed, cash-settled, standardized futures
that match existing parameters for products such as the
EURO STOXX 50
®
or German Bond futures," said
Lee Bartholomew.
The centrally cleared and cash-settled nature of the futures
means there are no settlements or deliveries to be monitored
and no daily closing prices to be checked as opposed to
holding bonds.
"As they have the structure of a standard Eurex index
future, the new products can be easily added to existing
infrastructure," Bartholomew added. "They do not require
any additional effort, for example, from the back office.
A portfolio optimization tool
Bartholomew points out that the futures are also a valuable
trading instrument that gives leveraged access to generate
alpha in the European credit market. This can be achieved
via a portfolio overlay, making the addition or removal
of bond exposures in portfolios a seamless process.
"Sharing a common structure means the EURO STOXX 50®
Corporate Bond Index futures and their equity index
equivalent can easily be combined to develop multi-asset
strategies and portfolios," Bartholomew said.
There are also unique opportunities in relative-value trading
with the possibility to trade the yield spread between
Eurozone corporate debt and futures on European Sovereign
Debt. This is also supported by T7 Entry Services for
block trading and EFP transactions on Eurex.
Further possibilities ahead
While the EURO STOXX 50® Corporate Bond Index has
a family of sub-indexes tracking maturity buckets, industries
and credit ratings, Eurex is for the moment focusing on
i
ntroducing futures on the main index and is set to extend
the offering to other bond indices.
A milestone for change in fixed-income markets
The introduction of a versatile trading and hedging vehicle
for the Eurozone credit market is a positive development
at a crucial time in the market's supply-and-demand balance.
New trading regulations that will come into force in 2018
are likely to tilt fixed income volumes further towards
on-exchange transactions, complementing the market's
traditional reliance on over-the-counter liquidity.
Bartholomew draws a comparison to the evolution in
the European fixed income periphery markets, and says
the introduction of the Corporate Bond Index futures is
a milestone that could transform the region's credit market.
"Adoption of futures, generally speaking, brings direct
benefits," he said. "But also increasing use of derivatives
can have a high impact. They can play a very big role
in the development and stability of, as well as confidence in,
fixed-income markets."
7
Lee Bartholomew
Head of Fixed Income & FX
Product R & D, Eurex
Jan-Carl Plagge
Head of Applied Research,
STOXX
The introduction this month of the Corporate Bond Index
Futures on Eurex, the first listed futures covering the Euro-
zone's corporate bond market, creates a new asset class and
novel possibilities in exchange-traded derivatives.
The futures track the performance of the EURO STOXX 50
®
Corporate Bond Index, made up of debt issued by the highly
capitalized companies selected into the Eurozone's well-
known blue-chip index EURO STOXX 50
®
. The contracts
offer the security and transparency of a cash-settled,
centrally cleared instrument at a time when demand for
fixed income products is growing.
A new solution in times of significant change
Record-low interest rates are driving demand for high-
yielding corporate debt, prompting more issuers to come to
the market. Trading volumes in European corporate bonds
have further benefited from the European Central Bank's
asset-purchasing program. At the same time, however, new
European regulatory requirements have forced investment
banks to re-evaluate their business model and focus their
trading activities, which has led to reduced market liquidity.
73
Produkt- und Strategiebroschüren
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und Messen
www.eurexchange.com
Spotlight on:
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Index Futures
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Spotlight on:
VSTOXX
®
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