Eurex still waiting for right conditions to launch EU bond futures
LONDON, Nov 13 (Reuters) -Deutsche Boerse's Eurex exchange still needs to see the right conditions to launch a futures contract linked to European Union bonds, it said on Wednesday, in another setback for the bloc's aim to become a borrower on a par with governments.
Eurex had previously envisaged launching such a contract this year, but said market participants needed to have confidence in the EU as a long-term borrower, among other pre-requisites.
Futures contracts are derivatives through which investors buy or sell underlying securities at a future date, allowing investors to hedge their positions and making trading easier by boosting liquidity.
The world's biggest bond markets, including the United States and Germany, are supported by futures markets, so the launch of an EU contract is seen as an important step as officials push for markets to treat the bloc on the same terms as a government borrower.
"Generally, we see growing market interest and support. There are, however, prerequisites that we are monitoring together with all stakeholders to ensure the long-term success, liquidity, and sustainability of such a new futures product. It's all about the right timing," Eurex said in a statement.
It said a key pre-requisite was that "market participants get confidence that the EU bond programme is sustainable and of long-term nature also beyond 2026".
The EU, which expects to raise over 700 billion euros ($741 billion) in common debt with the backing of member states by 2026 to finance a COVID recovery fund, has quickly become one of the biggest borrowers in global bond markets.
But new borrowing for the fund ends in 2026 and outstanding bonds will then gradually expire, casting uncertainty on the EU's long-term status as a borrower.
Eurex's delay is the latest setback to the EU's aspirations. Index providers MSCI and NYSE-parent ICE decided to leave the EU's bonds out of their government bond indexes earlier this year.
Eurex's approach to futures, however, contrasts with ICE, which is launching a futures contract on an index of longer-dated EU bonds to start trading from December.
However, Eurex said the EU's recent move to join the exchange's repo market for trading and clearing was an important milestone, fulfilling one of the conditions for a futures launch.
($1 = 0.9449 euros)
Reporting by Yoruk Bahceli. Editing by Dhara Ranasinghe and Mark Potter
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