CME Group has launched €STRWatch to help clients understand the potential impact of ECB rate decisions on futures settlement prices.
Building on the success of CME Group’s FedWatch, SOFRWatch and TreasuryWatch tools, €STRWatch allows clients to better analyze their expectations of the impact of ECB policy decisions in upcoming meetings.
€STRWatch projects forward €STR rates
€STRWatch provides a view of where CME Group €STR futures prices could settle if their expectations prevail, and takes into account the spread between the ECB’s deposit facility rate and the €STR rate to project forward €STR rates.
€STRWatch is available for use ahead of the next ECB monetary policy meeting scheduled for July 25.
Mark Rogerson, Head of Interest Rate Products, EMEA, CME Group, said: “The recent shift in European interest rate policy has put even greater emphasis on the importance of risk management and the need for comprehensive data to understand what the market is pricing in for €STR contracts. As our €STR futures marketplace continues to build liquidity and participation, we have launched this new tool to help clients navigate this period of monetary policy change.”
CME Group is live with options on €STR futures
It was in May 20 that CME Group went live with options on Euro short-term rate (€STR) futures. Options on Euro short-term rate (€STR) futures has come as a new tool for clients aiming to fine-tune their risk management strategies amid evolving European interest rate forecasts.
€STR futures were first introduced by CME Group on October 31, 2022, and were offered alongside SOFR futures. Since then, the group has reported a notable 79% increase in order book depth, a 31% narrowing of bid-ask spreads, and the successful management of the largest €STR futures expiration to date, involving over 14,000 contracts.
CME Group’s introduction of €STR options is aimed at providing clients with comprehensive tools to manage risk in European interest rate markets amid ongoing economic uncertainties.
80% of traders use CME for €STR futures
With consistently strong volumes, open interest in €STR futures has continued growing exponentially during 2023, with over 80% of market participants choosing CME Group as their home for European Short-Term Rate futures trading.
Adding options to the growing €STR futures offering will provide clients with the first holistic €STR derivatives solution that allows them to navigate continued economic uncertainty and more accurately manage their risk in European interest rate markets.
In November 2023, CME Group €STR futures reached an average daily volume (ADV) of 17,000 contracts – with a single-day record of 39,836 contracts traded on November 10.
CME’s overnight index futures based on €STR
In 2022, CME Group launched a suite of overnight index futures based on the Euro Short-Term Rate (€STR), available to trade on CME Globex and for submission of clearing via CME ClearPort.
Receiving automatic margin offsets against existing CME Group interest rate futures upon launch, €STR futures provide an efficient way to hedge European money market rates, with contracts including €STR 3-Month futures and €STR 3-Month Single Contract Basis Spread futures, complemented with €STR vs SOFR inter-commodity spreads.
€STR futures enable granular price discovery across the forward curve, IBOR/OIS basis trading, as well as managing cross-country basis spreads and price differentials between the E.U. and U.S. interest rates.
BrokerTec launched European repo as a spread to the €STR
In October 2023, BrokerTec unveiled an extension to its services that allows clients to trade European repo as a spread to the Euro Short-Term Rate (€STR). This move provides clients enhanced flexibility and efficient hedging options in a volatile interest rate landscape.
With this update, BrokerTec’s offering is extended across all European repo markets, excluding Italy and Spain. This addition complements the existing capability to trade French repo against €STR.
This announcement comes on the back of the CME Group’s introduction of €STR futures in 2022. The trading of European repo tied to €STR is available on BrokerTec’s EU Regulated Market, operated by CME Amsterdam B.V. This is a crucial point, especially in a financial landscape where regulatory oversight is intensifying.
