Brexit: the day after tomorrow
06 July 2016 London
Image: Shutterstock
The UK’s financial services firms were the biggest targets for short sellers after the Brexit vote, according to DataLend.
In an updated research note by DataLend on the effect of Brexit on securities lending behaviour, it was revealed that fees for financials jumped 52 percent in the days immediately after the result was confirmed on 24 June.
UK banks and real estate companies garnered the most attention, with fees to borrow rising from 40 basis points (bps) to 61 bps between 23 June and 28 June.
DataLend also noted that, in contrast to the fast-changing environment in the UK, EU borrow fees and utilisation of financial services firms remained largely the same.
Borrow fees for UK bank stocks soared by 200 percent from an average of 25 bps on 23 June to a high of 75 bps on 28 June.
Borrow fees for UK real estate firms “showed a similar pattern” to that of bank shares, with fees increasing from 38 bps on 23 June to 52 bps by 30 June, representing a 36 percent increase.
Utilisation rose from 7.2 percent to 8.7 percent during the same timeframe.
“Compared to hotter industries such as UK information technology (currently trading at 390 bps), these fees may not seem particularly incendiary; however, they still represent a significant change in demand to borrow the UK financial services sector,” Benedict continued.
“We will continue to monitor fees in UK financials, particularly in light of the Bank of England’s announcement on 5 July to ease special capital requirements for banks.”
In Europe, equity borrowing and fixed income saw a much calmer trading period after the referendum, but Germany did register noticeably more activity in its equity securities borrowing and fixed income markets than its French neighbour.
French and German financial services shares rose from 26 bps to 31 bps and 23 bps to 36 bps, respectively.
Utilisation for Germany also grew from 5.5 percent to 7.2 percent of the period, but France’s remained at 5 percent.
In the European fixed income world, German bonds fuelled a slight increase in fees in Germany, but France saw largely flat growth, according to DataLend.
Fees to borrow European sovereign debt went from 14.81 bps to 16.36 bps during the study period.
German bunds specifically increased from 14.45 bps to just under 18 bps during the time period, but utilisation remained stuck at just over 8 percent.
In France, fees stayed steady at around 15 bps, although the utilisation held strong at around 38 percent.
The UK’s referendum result had a big impact on other side of the Atlantic as well.
In the US, Brexit has roiled the treasury markets. In the days just prior to and after the referendum, the volume-weighted average rebate one-day on US treasuries increased significantly.
“We saw the one-day rebate for US treasuries trading at around 45 bps on 20 June and 21 June, just a few basis points above the overnight rate,” noted Benedict.
“As the days progressed, the one-day rebate continued to climb and reached a high of 73 bps by Friday (24 June). While the one day volume weighted average rebate has dropped a bit since then, we are still seeing sizable transactions booked at 150 bps as of 1 July, some 100 bps higher than the overnight rate.”
“However, it is important to highlight that the spike in repo rates is not only due to Brexit but also due to the quarter and half year-end factors as well.”
In an updated research note by DataLend on the effect of Brexit on securities lending behaviour, it was revealed that fees for financials jumped 52 percent in the days immediately after the result was confirmed on 24 June.
UK banks and real estate companies garnered the most attention, with fees to borrow rising from 40 basis points (bps) to 61 bps between 23 June and 28 June.
DataLend also noted that, in contrast to the fast-changing environment in the UK, EU borrow fees and utilisation of financial services firms remained largely the same.
Borrow fees for UK bank stocks soared by 200 percent from an average of 25 bps on 23 June to a high of 75 bps on 28 June.
Borrow fees for UK real estate firms “showed a similar pattern” to that of bank shares, with fees increasing from 38 bps on 23 June to 52 bps by 30 June, representing a 36 percent increase.
Utilisation rose from 7.2 percent to 8.7 percent during the same timeframe.
“Compared to hotter industries such as UK information technology (currently trading at 390 bps), these fees may not seem particularly incendiary; however, they still represent a significant change in demand to borrow the UK financial services sector,” Benedict continued.
“We will continue to monitor fees in UK financials, particularly in light of the Bank of England’s announcement on 5 July to ease special capital requirements for banks.”
In Europe, equity borrowing and fixed income saw a much calmer trading period after the referendum, but Germany did register noticeably more activity in its equity securities borrowing and fixed income markets than its French neighbour.
French and German financial services shares rose from 26 bps to 31 bps and 23 bps to 36 bps, respectively.
Utilisation for Germany also grew from 5.5 percent to 7.2 percent of the period, but France’s remained at 5 percent.
In the European fixed income world, German bonds fuelled a slight increase in fees in Germany, but France saw largely flat growth, according to DataLend.
Fees to borrow European sovereign debt went from 14.81 bps to 16.36 bps during the study period.
German bunds specifically increased from 14.45 bps to just under 18 bps during the time period, but utilisation remained stuck at just over 8 percent.
In France, fees stayed steady at around 15 bps, although the utilisation held strong at around 38 percent.
The UK’s referendum result had a big impact on other side of the Atlantic as well.
In the US, Brexit has roiled the treasury markets. In the days just prior to and after the referendum, the volume-weighted average rebate one-day on US treasuries increased significantly.
“We saw the one-day rebate for US treasuries trading at around 45 bps on 20 June and 21 June, just a few basis points above the overnight rate,” noted Benedict.
“As the days progressed, the one-day rebate continued to climb and reached a high of 73 bps by Friday (24 June). While the one day volume weighted average rebate has dropped a bit since then, we are still seeing sizable transactions booked at 150 bps as of 1 July, some 100 bps higher than the overnight rate.”
“However, it is important to highlight that the spike in repo rates is not only due to Brexit but also due to the quarter and half year-end factors as well.”
NO FEE, NO RISK
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