The International Capital Market Association’s (ICMA’s) European Repo and Collateral Council (ERCC) released the results of its 47th semi-annual survey of the European repo market. The survey measures and analyzes the value of outstanding repo plus reverse repo on the books of 61 participants at close of business on 12 June 2024.
Given that the ICMA surveys a sample of the European repo market, the headline number must be taken as the minimum size of the European market. The size of the survey grew 7.1% year-on-year to a record €11,114 billion ($11.9trn). Growth was faster than in the previous survey but the trend is still one of deceleration.
This is more apparent after adjusting for changes in the composition of the survey sample, which lowered growth rates to +1.7% since December and +4.9% year-on-year.
Summary of key findings:
- In the latest survey, the net reverse repo position of the survey sample remained large but continued to recede, possibly in response to the increased supply of securities resulting from QT and heavy issuance.
- The easier supply of cash, as central banks unwound their asset purchases and closed other facilities, was also reflected in the recovery of cash-driven repo, including tri-party repo.
- The reduced need to borrow specific securities may also account for further contraction in the share of automatic trading systems (ATS). A smaller share for trading on ATS was reflected in a smaller share for CCP-clearing (the two being intimately linked).
In contrast, automated trading platforms supporting dealer-to-customer repo continued to show strong growth, largely on the back of hedge fund business. - The share of the US dollar continued to grow, reflecting swings in market expectations about interest rate cuts by the Federal Reserve but also high yields and record issuance of Treasuries.
- The share of US Treasuries also continued to grow. On the other hand, French and German government securities lost ground in response to heavy issuance and political uncertainty. In tri-party repo, as the impact of TLTRO financing waned, reducing the share of covered bonds but reviving the allocation of government bonds. Securities issued by EU institutions accounted for almost 7% of tri-party repo. Haircuts were relaxed across the board, with the exception of MBS.
- The growth in the share of floating-rate repo continued in the first-half of 2024, notwithstanding a change in direction of monetary policy by many central banks.
- Maturity transformation by the survey sample intensified in the first-half of 2024. A surge in the share of gross positions with one day remaining to maturity shifted the entire net repo position of the survey sample into the one-day residual maturity band.
- Repos that were sponsored, otherwise guaranteed or indemnified by the survey sample accounted for the equivalent of 4.7% of the survey but this is undoubtedly an underestimate.