DataLend: Cash reinvestment desks in the US may have a more profitable year
21 September 2018 London
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Cash reinvestment desks in the US may have a more profitable year in 2018 than in years past, according to Chris Benedict, a product specialist at DataLend.
Writing in the September issue of DataLend’s research publication ‘Purple’, Benedict said that revenue generation in the cash reinvestment space following recent rate increases does not seem to be increasing from an absolute standpoint.
This is due to the continued decline in cash collateral balances, especially in the US, he said.
However, a comparison of cash reinvestment revenue from the first half of 2018 versus the same timeframe in 2017 shows a 10 percent revenue increase of approximately $84.8 million year-over-year.
Benedict added: “We also see an encouraging 42 percent cash reinvestment revenue increase of $163.3 million from Q1 to Q2 2018. Indeed, cash reinvestment revenue reached a three-year high of almost $543.9 million in Q2 2018.”
“This suggests that cash reinvestment revenue is seeing a bump as a result of rate hikes despite a broader trend away from pledging cash as collateral in securities lending. Cash collateral trades may be becoming more profitable on a per-trade basis due to rising rates.”
However, Benedict cautioned, that in a rising interest rate environment, rebate rates associated with cash collateral securities lending transactions are immediately updated to reflect interest rate changes, and the cash reinvestment side may lag.
This is due to reset duration mismatch, he explained. Overnight deposits and repurchase agreements will be reset after a day to reflect the interest rate change, but cash reinvestment in longer contractual terms or maturities will not have that option.
While DataLend has seen some fluctuations in the average net reinvestment spread for US dollars, its figures show that agent lenders are reinvesting cash collateral profitably for their beneficial owners, and generally the average net reinvestment spread appears to be on the rise.
Other topics covered in this issue included financial technology, big data, precision analytics, cash reinvestment in securities lending, securities finance revenue and emerging trends in securities finance.
DataLend’s research shows that general collateral revenues and balances are on the rise.
Balances increased 20 percent in June to July 2018, while revenue rose by 12 percent compared to the same period last year.
On-loan balances and revenue in the specials space remained virtually unchanged, calculated DataLend.
Prior to the heavy inflation experienced in the first two weeks of August, Turkey saw a 92 percent increase in bond revenue in June and July of 2018 compared to 2017, with the total on-loan value increasing by 32 percent to $48 billion.
Utilisation has been steadily increasing from 8.5 percent at the beginning of the year to over 13.3 percent on July 31.
Writing in the September issue of DataLend’s research publication ‘Purple’, Benedict said that revenue generation in the cash reinvestment space following recent rate increases does not seem to be increasing from an absolute standpoint.
This is due to the continued decline in cash collateral balances, especially in the US, he said.
However, a comparison of cash reinvestment revenue from the first half of 2018 versus the same timeframe in 2017 shows a 10 percent revenue increase of approximately $84.8 million year-over-year.
Benedict added: “We also see an encouraging 42 percent cash reinvestment revenue increase of $163.3 million from Q1 to Q2 2018. Indeed, cash reinvestment revenue reached a three-year high of almost $543.9 million in Q2 2018.”
“This suggests that cash reinvestment revenue is seeing a bump as a result of rate hikes despite a broader trend away from pledging cash as collateral in securities lending. Cash collateral trades may be becoming more profitable on a per-trade basis due to rising rates.”
However, Benedict cautioned, that in a rising interest rate environment, rebate rates associated with cash collateral securities lending transactions are immediately updated to reflect interest rate changes, and the cash reinvestment side may lag.
This is due to reset duration mismatch, he explained. Overnight deposits and repurchase agreements will be reset after a day to reflect the interest rate change, but cash reinvestment in longer contractual terms or maturities will not have that option.
While DataLend has seen some fluctuations in the average net reinvestment spread for US dollars, its figures show that agent lenders are reinvesting cash collateral profitably for their beneficial owners, and generally the average net reinvestment spread appears to be on the rise.
Other topics covered in this issue included financial technology, big data, precision analytics, cash reinvestment in securities lending, securities finance revenue and emerging trends in securities finance.
DataLend’s research shows that general collateral revenues and balances are on the rise.
Balances increased 20 percent in June to July 2018, while revenue rose by 12 percent compared to the same period last year.
On-loan balances and revenue in the specials space remained virtually unchanged, calculated DataLend.
Prior to the heavy inflation experienced in the first two weeks of August, Turkey saw a 92 percent increase in bond revenue in June and July of 2018 compared to 2017, with the total on-loan value increasing by 32 percent to $48 billion.
Utilisation has been steadily increasing from 8.5 percent at the beginning of the year to over 13.3 percent on July 31.
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