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ICE to Start First EU Bond Futures Trading Next Month

BRUSSELS, BELGIUM - MARCH 10: European Union flags fly outside a newly constructed part of the Europa building on March 10, 2017 in Brussels, Belgium. EU leaders have gathered for a two-day summit to discuss a number of issues including Great Britain's exit from the Union. (Photo by Carl Court/Getty Images) (Carl Court/Photographer: Carl Court/Getty I)

(Bloomberg) -- Intercontinental Exchange Inc. plans to launch a futures contract for the European Union’s bonds next month, a move that could eventually aid trading volumes in the bloc’s securities. 

The derivatives will first trade on Dec. 9, subject to regulatory approval, according to a ICE notice to clients dated Friday. The futures will reflect movements in the ICE 8-13 Year European Union Index, it said. 

It’s a welcome development for the EU, which has touted a futures market as a way of boosting trading in its debt. While futures are often preferred by investors given they tend to offer better liquidity, it’s far from guaranteed that the newly-launched contract will attract sufficient volumes.

“The EU is making another small step towards sovereign-style secondary market trading,” said Rainer Guntermann, a strategist at Commerzbank AG. “It will be interesting to see how liquidity will be building up in this newly-constructed instrument.”

The EU ramped up its joint-debt issuance program following the pandemic, and now officials are looking to improve the liquidity of its bonds with the aim of ultimately achieving lower borrowing costs. The bloc has recently launched a repo facility and has been lobbying index providers for inclusion in their larger sovereign-debt benchmarks.

That push faced a setback earlier this year when both ICE and MSCI Inc. rejected proposals to include EU debt in government bond benchmarks.

Europe’s major sovereign debt issuers including Italy, Germany and France all have futures markets. Rival exchange operator Eurex Clearing AG has previously said it planned to launch futures contracts in late 2024 on bonds sold directly by the European Union.

Barclays Plc analysts said the market reaction to futures would be driven by liquidity and whether they end up being used for hedging.

“This wouldn’t be the first time a new futures contract is introduced but does not gain traction,” said analysts led by Cristina Costa.

--With assistance from James Hirai.

©2024 Bloomberg L.P.