What’s next for EUREX-LCH basis ?


‘How the mighty have fallen’

This statement can be aptly applied to the long-end EUREX-LCH basis on the EUR curve which has seen the 30y point on curve fall from around 3.5bps in March 2018, to almost flat earlier this year and now quotes below zero recently

This can, perhaps, be driven by significant receiving of the longer end of the curve from traditionally long-only asset managers and pension funds who have to receive rates. By receiving in EUREX, they obtained at better level and the subsequent hedging by dealers to get out of positions in EUREX further pushed the basis level even lower.

The recent fall in CME-LCH basis for USD rates, and the sharp rally in market, brings in to focus what the next path for EUREX-LCH basis is.

Research conducted by the Cassini product team tries to answer this by looking at various factors which can impact the path.

Impact on basis

Depending how the above top two factors play against one another over the next few months will decide how the basis evolves.

Even though the choice of CCP depends on liquidity, basis and slippage, we have increasingly seen clients look to understand the margin and funding implications of moving from one CCP to another especially given different methodologies, portfolio margining and clearing fees.

Get in touch to understand how Cassini helps clients get a better understanding of margin and utilize resources in the most efficient way !