European turmoil causes lenders to run for collateral cover
16 January 2012 London
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Long only investors who lend reduced their assets and exposure to sovereign bonds of risky economies while increasing their holdings in bonds of insulated economies, reports Data Explorers.
Securities lending market reaction to the latest sovereign wealth crisis and downgrades shows that total supply of bonds in lending programs has decreased 9 per cent in the three months to January, while there has been a 7 per cent decline in loans.
"This has in turn helped fuel an increase in income generated by lending programs despite a fall in fees," writes Data Explorers.
European bonds have seen the most in the way of turmoil over the last three months, with every sovereign bond, except for Finland, seeing a fall in the value of their assets held in lending programs. Amongst the sovereign bonds in lending programs to have witnessed the largest declines in value are Greek (72 per cent), Portuguese (47.5 per cent), Slovenian (39.2 per cent) and Italian (35.4 per cent).
The report comes as the eurozone faces a fresh wave of downgrades by Standard & Poor's, which saw France lose its AAA long-term rating while Germany had its long-term outlook affirmed.
According to Data Explorers, there was strong demand to borrow French, German and UK bonds which recorded utilisation levels of 42.1, 47.5 and 47.4 per cent respectively. "This demand is no doubt driven by investors looking to use bonds as collateral in repo and other finance transactions," the securities lending analytics firm wrote.
Long only investors who lend also increased their holdings in the relative safety of Finnish, Canadian and Australian economies, it added.
Securities lending market reaction to the latest sovereign wealth crisis and downgrades shows that total supply of bonds in lending programs has decreased 9 per cent in the three months to January, while there has been a 7 per cent decline in loans.
"This has in turn helped fuel an increase in income generated by lending programs despite a fall in fees," writes Data Explorers.
European bonds have seen the most in the way of turmoil over the last three months, with every sovereign bond, except for Finland, seeing a fall in the value of their assets held in lending programs. Amongst the sovereign bonds in lending programs to have witnessed the largest declines in value are Greek (72 per cent), Portuguese (47.5 per cent), Slovenian (39.2 per cent) and Italian (35.4 per cent).
The report comes as the eurozone faces a fresh wave of downgrades by Standard & Poor's, which saw France lose its AAA long-term rating while Germany had its long-term outlook affirmed.
According to Data Explorers, there was strong demand to borrow French, German and UK bonds which recorded utilisation levels of 42.1, 47.5 and 47.4 per cent respectively. "This demand is no doubt driven by investors looking to use bonds as collateral in repo and other finance transactions," the securities lending analytics firm wrote.
Long only investors who lend also increased their holdings in the relative safety of Finnish, Canadian and Australian economies, it added.
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