Understanding Euro Buxl Futures and Yields

1. Understanding Euro Buxl Futures and Yields ByCentury Financialin 'Investment Insights' Share *Trading in financial market carries risk and can result in loss of capital. *This performance is only observed with historical backtests and not traded by the company. The product and investment ideas do not consider the risk profile and financial position of the recipient and may not be suitable for everyone. Trading in financial markets and use of margin involves a significant risk of loss, which can exceed deposits. Please read the complete disclaimer carefully. Risk and Assumptions: The testing environment has not considered transactions or any other costs. Returns may vary if there is any error in executing the trades. Past performance is not indicative of and does not guarantee future results. Trading in markets may involve a loss of capital. Please read the complete disclaimer carefully. Any further change in the underlying macros apart from the ones mentioned below may result in significant deviations affecting the performance.

2. Holding cost rate can change in the future, impacting the trade either negatively or positively. The Euro Buxl futures and options are a natural complement to the EU bonds market, offering traders and investors with a direct means to manage their long-term interest rate risk and their portfolios duration. The Euro Buxl futures ("Buxl") consists of cash Euro bonds with at least 24 to 35 years of remaining term to maturity. This product is available on both CMC and TradeUltra platforms. Additionally, the platforms also have the cash Euro Buxl which benefits from a hold costing receipt of +3.42% Current Market Scenario European Central Bank lifted its benchmark interest rate by 50 bps in March to 3%, in response to the headline CPI of 8.5% in February compared to the 10.6% highs observed in October 2022. The 50-bps rate hike in March represented the 6th consecutive rate hike, as the ECB attempted to tame the inflation. Finally, the policy makers are considering slowing down its pace with 25 basis point interest rate hike in May. As volatility remains high after last month's financial sector turmoil and cumulative past rate hikes work their way through the economy, so less is needed because past moves are still taking hold. Point to Remember! Euro deposit rate and Euro 30-year bond yield Data Source: Bloomberg Date: 13th April 2023 Not all yields move in tandem with the Euro Deposit rate. Empirically, movements in the Euro deposit rate are closely linked to movements in short-term interest rates and less to movements in long-term interest rates. This can be observed in the chart below, where longer-term bonds, like the 30-year Euro bond yield, are less influenced by the deposit rate. However, changes in the policy rate are likely to impact all spectrums of the yield curve. Bond Price Estimation using Regression Analysis: Regression analysis can be utilized to assess the strength of the relationship between variables and for modelling the future relationship between them. This model helps to forecast how the change in 30- year yield would affect the Euro Ultra prices. Simple Linear Regression between Euro-Buxl and Euro 30-year yield

3. Data Source: Bloomberg Date: 13th April 2023 Time Period: 5 years Currently, the 30-year yield is around 2.44%, and if we consider two scenarios of a 50-basis point increase and a 50-basis point decrease in the yield, the corresponding effect on the Euro Buxl bond is specified below: Regression Equation Y=-33.167X +214.164 for a 5-year time period Change in Yield 30-year yield Estimated Euro-Buxl Price If a 50 bps increase in yield 2.94 €116.65 If a 50 bps decrease in yield 1.94 €149.82 Data Source: Bloomberg Date: 13th April 2023 Risks and Assumptions for Back-tested trading strategies The risks and assumptions listed here are not intended to be an exhaustive summary of all the risks and assumptions involved. The strategy might suffer from look-ahead bias which occurs due to the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. This can lead to inaccurate results in the study or simulation.

4. Future price movements may not be exactly the same as the historical price movements and this could lead to variation in performance. Testing can sometimes lead to over-optimization. This is a condition where performance results are tuned so high to the past they are no longer as accurate in the future. The model assumes no slippages in trading. Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed. Drawdowns in actual trading can be higher than the tested system and losses could be significant in the event of leverage. Unforeseen events can lead to variation in performance from the tested trading strategy. The tested result has been computed with price feeds available from Bloomberg.

5. The testing environment has not considered transaction or any other costs. Trading indicators used for the purpose of testing has been provided by Bloomberg. The strategy might suffer from data mining fallacy, selection bias and backfill bias. Data Source:Bloomberg Date: 13th April 2023 Arun Leslie John Chief Market Analyst