(Bloomberg) -- Europe’s largest bond futures exchange has postponed the introduction of a futures contract tied to European Union debt, a blow to the bloc’s aims to boost trading in its bonds.
Eurex Clearing AG, which originally planned a launch this year, told Bloomberg that a “key” pre-requisite for such a product is that the EU bond program becomes sustainable and of long-term nature beyond 2026. It didn’t specify when a decision will be made, saying it needs more time to make assessments.
That’s a setback for the EU’s push to put its bonds on a par with those of member states such as Germany and Italy. Futures are a feature of major bond markets and integral to boosting liquidity by giving investors the ability to hedge and bet on price changes. Eurex’s stance is important because it hosts the most widely-used contracts.
The bloc only started ramping up debt issuance after the pandemic and currently has no plans to issue bonds that increase its debt load beyond 2026. The German exchange wants to see new debt beyond 2026 to support a 10-year futures contract.
It’s taking a different approach to Intercontinental Exchange Inc., which last week announced plans for the first EU bond futures. ICE’s product intends to reflect movements in the ICE 8-13 Year European Union Index, rather than a specific basket of bonds.
The EU did not immediately respond to requests seeking comment. Its officials have been taking various steps to boost liquidity, including lobbying index providers for inclusion in their larger sovereign-debt benchmarks, which they argue will lead to lower borrowing costs. But both ICE and MSCI Inc. rejected proposals this year to include EU debt in government bond benchmarks.
The bloc will begin repaying NextGenerationEU debt — which makes up the majority — starting in 2028.
Eurex hosts the most widely-used futures in European government bonds, including German, French and Italian debt. For portfolio managers looking to manage their risk, an EU bond future at Eurex would offer potential benefits from netting margin requirements against different positions.
By contrast some analysts have been skeptical that ICE’s futures will gain enough traction. An EU bond future offering from Eurex may arguably have “a better chance of success,” said Jussi Harju, a strategist at Citigroup Inc.
