Eurex launches the first futures on a Euro High Yield Index

Dan Barnes

From 17 October 2022, Eurex will offer market participants the opportunity to hedge the Euro-denominated high-yield corporate bond market in Europe.

This segment has been subject to higher volatility, primarily driven by rising inflation, higher interest rates and a divergent market sentiment, leading to wider bid-ask spreads. Funding conditions for corporate issuers have become less favorable, which naturally leads to wider credit spreads for Euro denominated corporate bonds.

“Volatility and a higher perceived risk for the future have increased the need for hedging by market participants invested in this asset class. Therefore, we have designed a cost-efficient and centrally cleared instrument that allows our customers to efficiently manage their investments and thus also helps to sustain liquidity in this challenging environment” said Lee Bartholomew, head of FIC exchange traded derivative product design at Eurex.

To leverage established benchmarks that Eurex customers are already familiar with, Eurex’s new High Yield Index Futures will be based on the Bloomberg Liquidity Screened Euro High Yield Bond index. These standardised, exchange-traded contracts use a simple derivative structure common in the equity index futures market. The nature of these futures should enable investors to take long or short positions. Clients can either hedge Euro high yield corporate securities held in their investments or take additional exposure via an index-linked product, which broadly represents this market.