Eurex to Launch a New Italian Government Bond Future

Introduction on 14 September 2009/ New Italian bond future can serve as a proxy for all non-triple A-rated European government bonds

The international derivatives exchange Eurex announced today that it will introduce a new future based on notional long-term debt instruments issued by the Republic of Italy (Buoni del Tesoro Poliennali – BTP) on 14 September 2009. The launch will extend the range of Eurex’s benchmark interest rate derivatives and aims to offer an appropriate hedge for all non-triple A-rated European government bonds and potentially other interest rate bearing instruments (i.e. swaps). Furthermore, the futures will add value to the Italian government bond market by enriching the basis and repo trading opportunities.

“Due to the financial market crisis, spreads between several European government bonds with lower ratings and German bonds have widened significantly. Thus, hedging for those non-triple A-rated government bonds using the Bund-Future has now become more difficult”, explained Peter Reitz, member of the Eurex Executive Board. ”Market participants have approached us for alternative hedging instruments for those bond markets”. He further pointed out: “In terms of outstanding amount and turnover the Italian bond market is the most important market.”

The design of the new futures is similar to the Bund-Future, so that they meet the hedging requirements of market participants and also enable efficient spread trading between the two 10-year government bond futures. The delivery window will be 8.5-11 years, the notional coupon will be six percent and the contract value will be €100,000. In addition, the tick size is set at 0.01 percent (10 euros per tick), in-line with Bund- and Bobl-futures. Trading hours will be from 8:00 am to 7:00 pm CET.

Eurex has received significant interest in the contract from the buy-side and sell-side and will offer a designated market making program. Several banks have expressed an interest in making markets to ensure liquidity from day one.