Interest rate futures contracts are widely traded throughout the world. The most popular futures contracts are generally 10-year government bonds and 3-month interest rate contracts. In Europe, futures on German interest rates are traded at the Eurex Exchange. Futures on UK interest rates are traded at the ICE Futures Europe exchange in London. Futures on Canadian interest rates are traded at the Montreal Exchange. Futures on Japanese interest rates are traded at the Singapore Exchange (SGX) and at the Tokyo Stock Exchange. A variety of other interest rate futures contracts are traded throughout the rest of the world (please see the front of this Yearbook for a complete list).
Eurozone - The Eurex German 10-year Euro Bund futures contract (Barchart.com symbol GG) fell sharply during 2022 and closed the year down -38.44 points at 132.93. The Eurex French 10-year OAT bond futures contract (Barchart.com symbol FN) also fell sharply during 2022 and closed the year down -35.85 points at 127.30. The Eurex Italy Euro BTP 10-year bond futures contract (Barchart.com symbol II) fell sharply during 2022 and closed the year down -38.09 points at 108.92.
European 10-year bond prices posted their highs for the year in early March 2022 after Russia invaded Ukraine, which prompted a surge of safe-haven buying of government debt. That prompted the ECB at the March policy meeting to cut its 2022 Eurozone GDP forecast to 3.7% from a December forecast of 4.2% and raise its 2022 inflation forecast to 5.1% from 3.2%.
European bond prices sold off into June as inflation surged and the ECB policymakers began discussing ending quantitative easing (QE) and raising interest rates. At the May ECB meeting, ECB President Lagarde said the ECB's first rate hike in over a decade would begin "weeks" after policymakers concluded net bond-buying, likely in Q3.
After sinking to a 9-year low in mid-June, European bond prices began a countertrend rally into early August. Bond prices rallied after the ECB, at its July policy meeting, raised its key deposit interest rate by 50 basis points to 0%, its first increase in 11 years, and a larger hike than expectations of 25 basis points. Soaring inflation prompted a more hawkish response from the ECB after Eurozone June CPI rose to a then-record high of 8.6% yr/yr.
After briefly climbing to a 4-month high in early August, European bond prices continued to decline the rest of the year as inflation accelerated, and the ECB maintained its aggressive rate-hike regime. The ECB raised its deposit rate by 75 basis points to 1.50% at its September and October meetings, and at the October meeting, the ECB said it "expects to raise interest rates further as inflation remains too high." The Eurozone CPI in October climbed to its record high of +10.7% yr/yr.
European bond prices sank to an 11-year low in late December after the ECB raised its deposit rate by 50 basis points to 2.00% at its December meeting and remained hawkish after ECB President Lagarde said, "we should expect to raise interest rates at a 50 basis point pace for a period of time."
UK - The ICE UK 10-year gilt government bond futures contract (Barchart.com symbol G) sold off throughout 2022 and finished the year down sharply by -25.00 points. Gilt prices posted their high for 2022 in late-February after Russia's invasion of Ukraine sparked safe-haven demand for gilts. However, gilts sold off throughout the rest of 2022 as inflation surged and the Bank of England (BOE) ended its quantitative easing (QE) program and began raising interest rates. At its May policy meeting, the BOE raised its main benchmark rate by 25 basis points for the fourth consecutive meeting to 1.00% and warned of double-digit inflation. Gilts extended their declines after the BOE, at its September meeting, raised interest rates by 50 basis points for the second consecutive meeting. The BOE then raised its benchmark rate by 75 basis points to 3.00% at the November meeting as inflation continued to soar. The UK CPI in October climbed +11.1% yr/yr, the fastest pace of increase in 41 years. Nearest-futures (GZ22) 10-year gilt prices sank to a 14-year low of 90.38 in October. Gilt prices recovered modestly into year-end after the BOE slowed its rate hike pace to 50 basis points as it raised rates to 3.50% at its December meeting and said the UK was in recession and "inflation may have already peaked."
Canada - The Montreal Exchange's Canadian 10-year government note futures contract (Barchart.com symbol CG) sold off in 2022 and closed the year down -20.07 points. Canadian bond prices sold off into October as soaring inflation prompted the Bank of Canada (BOC) to raise interest rates aggressively. Canada's June CPI accelerated at a +8.1% yr/yr pace, the most in 40 years. The surge in inflation prompted the BOC at its July meeting to raise its benchmark rate by a more-than-expected 100 basis points to 2.50%, the first full-point increase since 1998. Canadian 10-year bond prices posted a 12-year nearest-futures low of 118.11 (CGZ22) in October. Bond prices rebounded modestly into year-end as the pace of inflation slowed, and the BOC signaled a potential pause in its rate-hike campaign. The BOC, at its December meeting, raised its benchmark rate by 50 basis points to 4.25% and said it was "considering" the need for further rate hikes to curb inflation.
Japan - The SGX Japan 10-year Japanese government bond (JGB) futures contract (Barchart.com symbol JX) posted its high for 2022 in January at 151.78. Japanese bond prices then tumbled into Q2 and posted an 8-1/2 year low in June. The Bank of Japan (BOJ), at its April meeting, expanded its quantitative easing (QE) program by announcing that it would purchase an unlimited amount of JGBs, on an as-needed basis, to prevent the 10-year JGB yield from going above the BOJ's 0.25% ceiling for its yield-curve control (YCC) target. Despite the bullish implications of the BOJ's asset-buying program, bond prices retreated as a plunge in the yen to a 20-year low boosted inflation expectations. However, JGB bond prices rebounded into early August after the BOJ, at its June meeting, left its YCC policy unchanged and maintained its negative-rate policy. Japanese government bond prices fell back into Q4 and remained under pressure into year-end. The yen sank to a 32-year low in October, boosting inflation expectations. Japan's CPI in December climbed at a +4.0% yr/yr pace, the most in 32 years. At its December meeting, the BOJ unexpectedly widened its YCC target band, raising the upper limit of its 10-year JGB bond yield target range to 0.50% from the previous upper limit of 0.25%. That action pushed the 10-year JGB bond yield up to a 7-1/2 year high of 0.487% in December. The BOJ's move to widen its YCC target also sparked speculation the BOJ may end QE and begin raising interest rates in 2023.
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