Citi note that while the ICE EU bond futures contract (set to start trading on December 9) “would allow potential buyers another way to gain levered exposure to EU bonds in addition to repo - and is yet another step in EU’s push to be perceived as a sovereign issuer- it faces an uphill struggle for a few reasons.”

• “First, it would trade on ICE whereas core EGB futures trade on Eurex, limiting netting possibility.”
• “Second, liquidity of this contract may also be hindered by the uncertainty over the EU’s future issuance needs.”
• “Third, the ICE 8-13-Year index (that the contract is based on) includes many smaller, illiquid bonds issued to finance SURE and EFSM/MFA loan programmes, which could cause significant valuation distortions.”
• “Finally, Eurex is planning to launch its own future on EU bonds before year-end which may have a better chance of success given it would sit alongside existing EGB futures.”