Starting from 17 October, Eurex will offer market participants the ability to hedge the Euro-denominated high-yield corporate bond market in Europe.
Over the last few months, this segment has experienced increased volatility – mainly driven by rising inflation, higher interest rates and divergent market sentiment.
According to Eurex, funding conditions for corporate issuers have become less favourable, which has led 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.”
Eurex’s new high yield index futures will be based on the Bloomberg Liquidity Screened Euro high yield bond index – leveraging established benchmarks that Eurex’s customer based are already familiar with.
Eurex stated that these standardised, exchange-traded contracts utilise a simple derivative structure widely used in the equity index futures market. The versatile nature of these futures will allow investors to take long or short positions.
Clients will be given the option to either hedge Euro high yield corporate securities held in their investments, or alternatively, take additional exposure via an index-linked product, which represents this market broadly.
The new contracts will also allow market participants to adapt their investment and trading strategies, allowing them to take advantage of the increased volatility of Euro-denominated sub-investment grade securities.
“Volatility and a higher perceived risk for the future have increased the need for hedging by market participants invested in this asset class,” said Lee Bartholomew, head of FIC ETD product design at Eurex.
“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.”