At Any Rate European Rates: Analysing Eurex futures roll
Feb 25, 2025
Khagendra Gupta and Matteo Mamprin delve into the nuances of Eurex futures, particularly the March and June bond contracts. They break down the pivotal role of the cheapest to deliver bonds in pricing and explore the impact of funding rates on futures rolls. As they analyze market dynamics, they discuss macro influences and short positions affecting yield spreads. The conversation also covers trading strategies for the 10-year BTP and the significant open interest in OIT futures as roll dates approach.
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Futures Roll Mechanics
- Eurex futures open interest exceeds delivered contracts, as investors roll positions to maintain duration.
- This roll analysis focuses on the spread between front and back contracts, influenced by cheapest-to-deliver (CTD) dynamics.
Dominant CTDs
- Dominant CTDs simplify roll analysis by eliminating delivery option value.
- The spread becomes the difference between CTD forward prices, influenced by yields, curves, funding rates, and relative value.
Drivers of Roll Analysis
- Shared CTDs focus analysis on forward funding rates, split between macro (ECB easing expectations) and bond-specific repo.
- Different CTDs emphasize duration-neutral spreads, driven by CTD yield spread and forward funding rates.