Prepared by Charles O’Donnell and Fabio Tamburrini
The non-bank financial intermediation (NBFI) sector is playing an increasingly important role in euro area government bond repo markets. The NBFI sector’s activity in euro area government bond repo markets has increased rapidly in recent years, particularly in the area of investment funds. The sector’s growth is focused in the non-centrally cleared segment. This development may improve market liquidity in normal times. However, recent stress episodes have highlighted the systemic risks posed by deleveraging dynamics stemming from the activities of highly leveraged investment funds in these markets.
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