The international derivatives exchange Eurex will be launching new Euro inflation futures on 21 January 2008. The futures contract will be based on the HICP, which measures inflation in the Euro zone. With this product, Eurex is adding a new asset class to its product suite. Exchange traded inflation futures complement the existing markets of inflation linked cash products and OTC derivatives, which have seen rapidly growing volumes. Eurex is the first European derivatives exchange to offer inflation futures.
Inflation futures will be traded on Eurex for the first time with a specific market model to accommodate the fact that inflation and inflation expectations are subject to minor changes during the day: Liquidity will be concentrated in two daily auctions of 15 minutes – opening and closing – where market makers will provide liquidity. During continuous trading market makers will quote upon request.
Peter Reitz, member of the Eurex board, said "With our new futures contract, we expand into a new asset class, thus offerings our members new trading and hedging opportunities. Our future complements the existing OTC inflation derivatives and will significantly improve the liquidity in euro inflation bonds and derivatives markets." The growth of the European inflation markets boosted the demand from market participants for efficient and low-cost hedging instruments (derivatives) for managing short term inflation risks. The new Eurex inflation futures also help the market to calculate prices for derivatives on forward inflation-linked bonds which in a next step can be used to build up an inflation-linked bond options market.
The new futures contract will be based on the unrevised Harmonized Index of Consumer Prices of the Euro zone excluding tobacco (HICP). It is an important measure of consumer price inflation in the Euro zone and serves as a guide for monetary policy. The HICP is calculated monthly by the Statistical Office of the European Communities ("Eurostat").
Inflation-linked instruments have already been available on Eurex Bonds since March 2006. The electronic trading platform (http://www.eurex-bonds.com/) – operated by Eurex in cooperation with leading international trading firms – offers Inflation-linked government bonds of France, Greece, Italy and Germany. The latter already generated turnover of almost €10 billion (single counted) since introduction, €6.7 billion already in 2007.