The successful start of the new OAT futures which were launched on 16 April is not surprising. Investors, hedgers and arbitrageurs alike have warmed to this addition to the spectrum of product available in European sovereign markets within weeks.
Based on the notional long-term bonds issued by the French Republic (Obligations Assimilables du Trésor – OAT) investors facing new basis risks in the current market situation can use Eurex’s newest fixed income contract to hedge their exposure to French government bonds. Alongside the existing derivatives on German and Italian government bonds, investors thus have a range of high-precision hedging instruments at their disposal, covering the European sovereign bond spectrum.
With the addition of long-term Euro-OAT Futures to our product range, Eurex meets the needs of investors who are faced with basis risks in the current market situation, offering an effective hedging tool as well as new spread trading opportunities.
Contract specifications
| Underlying | Notional long-term debt instruments issued by the Republic of France with a remaining term of 8.5 to 10.5 years, a term at issue not exceeding 17 years, and a 6 percent coupon. |
| Contract value | EUR 100,000 |
| Settlement | A delivery obligation arising out of a short position in a Euro-OAT Futures contract may only be fulfilled by the delivery of certain debt securities on the Delivery Day; specifically, sovereign bonds issued by the Republic of France with a remaining term of 8.5 to 10.5 years and an original term of no more than 17 years. Such debt securities must have a minimum issue amount of EUR 5 billion. |
| Minimum price change | 0.01 percent, equivalent to a value of EUR 10. |
| Contract months | Up to nine months: The three nearest quarterly months of the March, June, September and December cycle. |
| Trading hours | 08:00 - 19:00 CET |
| Market-Making | 09:00 - 17:30 CET; 50 contracts with an average bid/ask spread of 0.15 percent |
| Minimum block trade size | 250 |
| Vendor codes | Bloomberg: OATA Comdty Reuters: <0#FOAT:> CQJ: FOATmy |
With a market capitalization of EUR 1.4 trillion on a European level the underlying French government bond market is second after Italy. The secondary market for French sovereign bonds is regarded as among the most liquid worldwide, alongside the German market. The basket of physically deliverable OATs usually covers three issues with an outstanding volume of up to EUR 30 billion each.
Liquidity is supported by several Market Makers. The majority of trading takes place via the order book, however a significant portion of the overall volume comes from bilaterally agreed block and exchange for physical (EFP) trades which can be entered into the Eurex Clearing system and use Eurex Clearing as central counterparty.
Designated Market Makers in Euro-OAT Futures
More than 153 trading participants have been active in the contract since product launch - 70 participants on a daily average, with a rising trend. The first contract roll-over and delivery process in June 2012 went smoothly. Open interest in the September contract now stands at more than 108,000 contracts.
A look at the breakdown of activity shows a near balance of proprietary business (49.6 percent) and customer business (45.7 percent). Trading volumes originate primarily from the United Kingdom, followed by France and Germany.
The Euro-OAT Futures contract was designed in line with our existing Euro-Bund and Euro-BTP Futures, particularly with respect to maturities. This facilitates efficient spread trading among the three 10-year government bond futures contracts. Furthermore, investors benefit from a potential margin offset against existing fixed income positions at Eurex Exchange.
