What is a BOBL Futures Contract?

A BOBL futures contract is a standardized futures contract based on a basket of medium-term debt issued by the German Federal Government. BOBL is an acronym for a German term, 'Bundesobligation', which translated to English means 'federal government bond.'

Understanding BOBL Futures Contract

BOBL futures contracts trade under the symbol FGBM on the Eurex Exchange, an international exchange based near Frankfurt, Germany. The underlying assets are medium term bonds with maturities of 4.5 to 5.5 years and a coupon rate currently at 6%. The contract has a notional contract value of 100,000 Euros with a minimum pricing unit of €1 and a minimum tick vale of €5. Unlike most other types of future contracts, BOBL future contracts tend to be settled by delivery.

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.

Key Takeaways

  • A BOBL futures contract is a standardized futures contract based on a basket of medium-term debt issued by the German Federal Government.
  • BOBL is an acronym for a German term, 'Bundesobligation', which translated to English means 'federal government bond.'
  • BOBL, along with the Bund and Schatz, futures are among the most heavily traded fixed-income securities in the world.

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 is the long-term bond equivalent to the 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 is also known as the short bund futures contract. BOBL, along with the Bund 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 quickly compare conditions between countries. 

In the years following the 2008 financial crisis, central banks around the world embarked on a coordinated campaign to increase liquidity to resuscitate economic growth. This campaign resulted in many government interest rates, including some in Germany, falling below zero. German interest rates fell below zero for bond maturities as long as seven years.