![]() ![]() When looking at liquidity and spreads between Italian and German bond repo, they are very similar. ![]() This is again the result of the ECB TLTRO III program, as even large consumers of repo cash, such as Italian bondholders, can go to the ECB to hedge their Treasury exposure.Ī broader characteristic of the current market is an inability to create arbitrage. That said, as we are now in September there are no more such worries: both banks and their clients have the balance sheet capacity to refinance positions. Banks without these same constraints benefitted from an uptick in business. Some banks were concerned about a cash squeeze and recalled their repo trades with clients to avoid possible liquidity issues. SFM: What does other client demand look like for repo?īB: We saw a sharp increase in term repo demand in April, nearer the start of the COVID pandemic. ![]() There is very little difference between the countries. Currently, the difference between Italian and German bond repo is only a few basis points around ECB deposit rate at -0.50%. We are largely in a General Collateral (GC) market compared to the past. The problem is that there are fewer and fewer expensive bonds right now. SFM: What clients are looking for collateral in this environment?īB: Besides counterparties that are cash rich and want to lend with minimal risk, there are clients trying to get some pick-up on expensive bonds. EU repo is transforming into a collateral market compared to an arbitrage market. That means from a liquidity perspective, intervention is working well, but the market is not the same. Central banks are now in the business of avoiding scarcity of funding. Compared to last year when you could have seen some volatility on bonds and cheapest to deliver, now central banks have smoothed out that volatility on prices. SFM: How has the impact of central bank’s intervention been on the repo markets?īB: It is hard to give a precise answer. Starting then, Italian repo came back to levels before COVID and repo spreads are tighter again between € govies. The difference is the implementation of the European Central Bank’s (ECB) targeted longer-term refinancing operation (TLTRO) III that evolved in June 2020 with rates potentially as low as -1%. We are now more or less back to “pre-COVID-19″ levels. Italian repo on term for example was cheaper than German repo (positive double digit spread vs Eonia). During the first weeks of COVID-19, there were pricing discrepancies between peripheral and core govies and some of these were getting quite sizable. To start, could you tell us how you see the current state of European repo markets?īertrand Bordais: We are in a period of relative calm with ample liquidity. Securities Finance Monitor: Bertrand thanks for speaking with us. Bertrand shared his views on the European repo markets, upcoming Leverage Ratio changes and global competition. Securities Finance Monitor recently spoke with Bertrand Bordais, Global Head of MM Government Bond Repo of the Global Securities Financing team at Natixis. ![]()
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