What is a BOBL Futures Contract
The BOBL futures contract has an underlying asset basket of medium-term, German Federal Government issued bonds. The BOBL is a standardized futures contract. The maturity of the underlying bonds is 4.5 to 5.5 years. BOBL is an acronym for a German term, "Bundes obligation," which translated to English means "federal government bond."
The contract has a notional contract value of 100,000 Euros. Unlike most other types of future contracts, BOBL future contracts tend to be settled by delivery.
BREAKING DOWN BOBL Futures Contract
BOBL futures contracts trade under the symbol FGBM on the Eurex Exchange, an international exchange based near Frankfurt, Germany. The Eurex Exchange deals primarily in European-based derivatives. It is the largest European futures and options market. Prices are quoted in 0.01 percent of par value and contracts mature quarterly in March, June, September, and December.
In the United States, these futures contracts trade on the Intercontinental Exchange (ICE) under the symbol G05. As of March 2018, there were no exchange-traded funds (ETFs) based on German notes and bonds available.
The German Fixed Income Market
Similar to the U.S. market, fixed income futures based on German government debt instruments are traded actively for short-, medium-, and long-term maturities. Whereas the BOBL is the medium-term maturity, active trading also exists for Bund futures, which are the long-term bond equivalents to the long U.S. Treasury bond, with original maturities between 10 and 30 years.
Schatz futures are short-term maturity bonds, having an underlying basket of short-term German debt with maturities ranging from 21 to 27 months. Schatz futures are very actively traded. Schatz is also known as the short bund futures contract.
The Bund, BOBL, and Schatz futures are among the most heavily traded fixed-income securities in the world.
Interest rates in Germany are some of the most widely watched rates in the world. Spreads between similar maturities in Germany, the rest of Europe, and in the United States are often compared to analyze relative global economic conditions, flows of capital, and government economic policies. For example, the benchmark 10-year yields, as well as two-year yields, are often used to compare conditions from country to country quickly.
In the years following the 2008 financial crisis, central banks around the world embarked on a liquidity increasing campaign. The campaign resulted in many government interest rates, including some from Germany, falling below zero. German interest rates fell below zero for bond maturities as long as seven years.