European repo market grows to new high, says ICMA survey
30 November 2021 Europe
Image: NicoEINino/stock.adobe.com
The European Repo and Collateral Council (ERCC) of the International Capital Market Association (ICMA) has published its European repo market semi-annual survey.
The survey calculated the amount of repo business outstanding on 9 June 2021, from the returns of 59 financial institutions.
It revealed the baseline figure for the European market size at a record high of €8,726 billion, a 5.3 per cent rise from €8,285 billion in the December 2020 survey.
The increase was driven by new issuance by a number of governments, which saw an increase in gross and net terms compared to the second half of 2020.
Higher issuance was reflected in increased secondary cash bond market turnover in several countries, feeding into the repo market. Increased repo trading also reflected heavy shortselling in anticipation of possible interest rate rises in the UK and a start to the ‘tapering’ of quantitative easing (QE) in the eurozone, according to the survey.
Other key findings from the paper included an elevated share of GBP in the survey sample in line with the growth of repos of UK government securities, which now provide the largest share of European repo market collateral. German government securities played a reduced role as repo collateral, owing to “scarcity” created by asset purchases by the Eurosystem and friction in the official securities lending programme.
Additionally, the share of securities issued by EU institutions being used as collateral stands at just 0.3 per cent of the survey total. However, this is equivalent to 8 percent of the total €259 billion outstanding at the time of the survey, indicating that the repo market has been playing a significant role in the distribution of these securities.
The value of automated dealer-to-client (D2C) trading electronic repo trading continued to grow strongly, reflecting the continued impact of working from home. Triparty repo continues to be crowded out by central bank liquidity, notes the report.
The survey calculated the amount of repo business outstanding on 9 June 2021, from the returns of 59 financial institutions.
It revealed the baseline figure for the European market size at a record high of €8,726 billion, a 5.3 per cent rise from €8,285 billion in the December 2020 survey.
The increase was driven by new issuance by a number of governments, which saw an increase in gross and net terms compared to the second half of 2020.
Higher issuance was reflected in increased secondary cash bond market turnover in several countries, feeding into the repo market. Increased repo trading also reflected heavy shortselling in anticipation of possible interest rate rises in the UK and a start to the ‘tapering’ of quantitative easing (QE) in the eurozone, according to the survey.
Other key findings from the paper included an elevated share of GBP in the survey sample in line with the growth of repos of UK government securities, which now provide the largest share of European repo market collateral. German government securities played a reduced role as repo collateral, owing to “scarcity” created by asset purchases by the Eurosystem and friction in the official securities lending programme.
Additionally, the share of securities issued by EU institutions being used as collateral stands at just 0.3 per cent of the survey total. However, this is equivalent to 8 percent of the total €259 billion outstanding at the time of the survey, indicating that the repo market has been playing a significant role in the distribution of these securities.
The value of automated dealer-to-client (D2C) trading electronic repo trading continued to grow strongly, reflecting the continued impact of working from home. Triparty repo continues to be crowded out by central bank liquidity, notes the report.
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