BrokerTec, ICAP’s electronic fixed income trading platform, and MTS, a fixed income trading venue in Europe which is majority owned by London Stock Exchange Group, are launching a daily repo index series for the sovereign bond markets of the main eurozone countries.
The series will include an index for each of the sovereign bond markets of Germany, France, Italy, Spain, Austria, Netherlands, Belgium and Finland and will be launched in quarter four 2012.
The index calculation and design has been established following significant market interest and demand and is supported by a group of repo dealers representing several major financial institutions. BrokerTec and MTS intend to establish an advisory group to ensure the indices remain current reflecting any change in market conditions. Discussions are progressing with a third potential partner who has an established presence in the repo sector to further increase the robustness of the index.
Repo transactions are used for borrowing and lending on a secured basis and for financing and covering bond positions. Overall daily volumes in eurozone sovereign repos typically exceed EUR300bn (single count). The indices will be calculated with one-day repo transactions, which represent the bulk of trading activity. By using aggregated data from real repo transactions over each trading day, the index will represent the volume-weighted effective funding rate for eurozone sovereign bonds issued by these countries.
Romain Dumas, managing director of EMEA short term government products at Credit Suisse, says: “We welcome this development. In early discussions we have been encouraged by the enthusiastic support shown by the repo community in helping to develop this index as well as by the interest emanating from the derivatives desks. We are optimistic for its potential to accurately reflect the secured cost of funding in each of the main eurozone markets.”
John Edwards of BrokerTec says: “With the divergence of eurozone markets and macro-economic issues affecting the European Government Bond market, developing an index that provides a cost of funding reference for sovereign bonds has considerable interest and demand from various sectors of the markets.”