ESMA says demand for EU HQLA remains robust, pricing 12 bps over GC

European Union (EU) securities markets, infrastructures and investors face new risks in the form of high volatility, the European Securities and Markets Authority (ESMA) said today in its latest Trends, Risks, and Vulnerabilities (TRV) Report (No 2, 2018). ESMA also re-iterated its concerns about cyber risk and Brexit risks for business operations.

While the amount of high-quality collateral outstanding continues to shrink (A.53), the demand for high-quality liquid assets (HQLA) remained robust, as illustrated by the sustained growth in securities financing transactions using EUR government bond collateral. The average daily trading volume in centrally-cleared repo transactions collateralised with EA government bonds reached EUR 217bn in 1H18, up 15% from the same period last year (A.67). The average value of EU government bonds on loan increased by a comparable percentage, to EUR 341bn (A.72).

Continued high demand for HQLA was also reflected in repo market specialness, with repo rates on EA government debt securities in very high demand averaging 12bps above the prevailing general collateral rate. This was broadly in line with last year’s average, but still significantly higher than the 2013-16 average of 7bps (A.68). End-quarter repo rate volatility persisted, as HQLA supply remained tight and banks continued to hoard cash around regulatory reporting dates. Low repo market liquidity at quarter-end especially affected institutional investors, as they rely on this market to safely store and quickly retrieve cash.

The full Trends, Risks and Vulnerabilities report is available at

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