Borrowers double Dutch fixed income holdings
12 September 2014 London
Image: Shutterstock
The number of Dutch fixed income securities, and particularly government bonds, being borrowed has more than doubled between June 2013 and 2014, according to Karl Loomes of SunGard’s Astec Analytics.
While the borrowing of Dutch equities has been continuing as normal for the most part, with steady demand during the year and a spike in dividend season, the number of fixed income securities available to lend has also more than doubled in this same period.
Loomes added that, although some other European countries such as Germany and France have seen similar fixed income gains, for the most part this does not appear to be a pan-European trend.
Loomes stated: “This trend is matched both in the number of securities and in the number of transactions, which increased at a more measured pace of 50 percent since June 2013. This would suggest that, not only are more fixed income securities being borrowed overall, but also that the average volume per transaction has increased as well.”
Trying to discern why there has been such a large shift may be more difficult, according to Loomes, but Astec’s loan rate figures do offer some insight.
“We have seen that the increased demand to borrow fixed income has seemingly driven higher intrinsic loan rates, although still well within general collateral territory, and coming with a two-month lag over the initial increases—on average around 10 basis points over the last 12 months.”
Astec’s numbers also show that the average reinvestment revenues gained from cash collateral started to climb in line with, and actually slightly earlier, than overall borrowing of fixed income.
Peaking in May 2014, the average reinvestment revenue as much as tripled since June 2013. Astec data also shows that, as this trend began, the shift away from non-cash collateral towards cash also increased—at its height in October 2013 the breakdown being 50:50, compared to a normal ratio of around 20:70, cash to non-cash.
Unlike volumes, and reinvestment yield, this shift retreated back towards a more normal level for the Netherlands. In the wake of this rebalancing, and coming from a growth in non-cash backed lending, reinvestment yield similarly retreated.
While the borrowing of Dutch equities has been continuing as normal for the most part, with steady demand during the year and a spike in dividend season, the number of fixed income securities available to lend has also more than doubled in this same period.
Loomes added that, although some other European countries such as Germany and France have seen similar fixed income gains, for the most part this does not appear to be a pan-European trend.
Loomes stated: “This trend is matched both in the number of securities and in the number of transactions, which increased at a more measured pace of 50 percent since June 2013. This would suggest that, not only are more fixed income securities being borrowed overall, but also that the average volume per transaction has increased as well.”
Trying to discern why there has been such a large shift may be more difficult, according to Loomes, but Astec’s loan rate figures do offer some insight.
“We have seen that the increased demand to borrow fixed income has seemingly driven higher intrinsic loan rates, although still well within general collateral territory, and coming with a two-month lag over the initial increases—on average around 10 basis points over the last 12 months.”
Astec’s numbers also show that the average reinvestment revenues gained from cash collateral started to climb in line with, and actually slightly earlier, than overall borrowing of fixed income.
Peaking in May 2014, the average reinvestment revenue as much as tripled since June 2013. Astec data also shows that, as this trend began, the shift away from non-cash collateral towards cash also increased—at its height in October 2013 the breakdown being 50:50, compared to a normal ratio of around 20:70, cash to non-cash.
Unlike volumes, and reinvestment yield, this shift retreated back towards a more normal level for the Netherlands. In the wake of this rebalancing, and coming from a growth in non-cash backed lending, reinvestment yield similarly retreated.
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