Trading the curve: opportunities in fixed income F&O

How do you expect government bond markets to behave in 2025?Thilo Rossberg: My sense is that markets in 2025 will diverge rather than come together. The issues that the UK and France have been experiencing recently indicate that market volatility is set to rise this year, with a strong focus from investors on the credit quality of government bonds.A main driver of this volatility will be the erratic release of political statements, especially around US tariffs. It is not so clear cut what this might mean in terms of markets working together.This could lead to US and European rates diverging - a situation further complicated by the different mandates of each region’s central banks. How exactly these factors play out remains to be seen. The only belief I am quite firm on is that uncertainty and volatility will rise as a result. In this context, how significant will collateral be for market participants?Collateral, and in particular bond collateral, is becoming more important. Financing liquidity has become scarcer and harder to source from banks. Investors increasingly have to get their bond portfolios to work in some way. Banks are placing increasingly more importance on what they do with their collateral, how they manage it and where they can create value and put it to use. That has knock-on effects on supply and demand in the secondary market. It creates a virtuous circle where everything is interconnected - the repo facility, the collateral, the way investors deal with their bonds, and also how market participants interact with each other. That can be benign, but it also creates risk. That was apparent with the UK pension fund and Gilts crisis, where market participants were suddenly forced to post more collateral and a vicious cycle began, because so many counterparties were connected to each other. That interconnectedness wasn’t the case when collateralization of derivatives portfolios was less commonplace across the market. With that situation now reversed, collateral scarcity has become more common. Returning to market conditions, how will this new focus on sovereign risk affect fixed income trading desks?Part of the recent movement we've seen on the asset swap spread is due to the expectation that there was too much supply of government and SSA bonds - maybe more than what the market would be willing to digest. These tensions do not seem likely to dissipate. Discussion of common European markets will resurface soon, with the budgetary topic of 5% defense spending becoming increasingly urgent. The question markets will ask is how are governments going to finance this? Even more credible nations like France are facing questions about how sound their financials are.But if the political environment is demanding these governments spend significantly more on defense, there is a big financial question to answer on how that will be funded. Will it have to be done as joint European issuance? That would mean slowly but steadily moving closer towards a common European bond program. Ten years ago, that was almost taboo, but it is now creeping into the market, step by step. That may well be a good thing. It is bringing a new force to the table, which is potentially big enough to match US Treasuries at some point.There is still a long way to go before we get there, but the market’s appetite for this new asset class is clear. Just a discussion about including EU bonds in indices gave the market belief that this might happen and was very beneficial for spreads and liquidity. In the same vein, moving EU bonds onto MTS, and then making it compulsory for dealers to quote on MTS was a big step closer to being regarded as a government bond. This is a sentiment that we view favorably and believe will take shape in the short, rather than the long, term.Visit the panel at Derivatives Forum Frankfurt on 26 February from 17:45-18:30 CETTrading the curve: opportunities in fixed income F&OWith trading and clearing of euro-denominated derivatives readily available on one platform, what are the implications for the market? This panel will delve into the various instruments available and discuss why liquidity isn’t the only metric.What are the developments at the end of the curve?How to optimize trading strategy with STIRs?How to navigate evolving bond market liquidity and market fragmentation?EU bond futures as testament of a highly developed market ecosystemModerator:Luke Jeffs, Managing Editor, FOWSpeakers:Thilo Rossberg, Head of Traded Markets, LBBWLee Bartholomew, Global Head of FIC ETD Product Design, EurexMichaël Soued, Head of Aggregate and Multi Asset Total Return, Ostrum Asset ManagementSören Kretschmar, Director, Head Bond Derivatives Trading, Deutsche BankSiegfried Ruhl, Hors Classe Adviser Directorate General for Budget, European CommissionWeiter zum vollständigen Artikel bei Deutsche Boerse AG Unsponsored American Deposit Weiter zum vollständigen Artikel bei Deutsche Boerse AG Unsponsored American Deposit