December underlined the positive trend of rising volumes throughout the year, writes Frank Gast, managing director and member of the Management Board at Eurex Repo in a market briefing.
Term-adjusted volumes increased by 50% in all market segments in 2022, with continued strong growth in GC & Special by 57%. The team also saw a great revival of GC Pooling, with a growth of 37%. The total average outstanding volume reached around €200 billion, close to the all-time high of 2014, before the start of QE.
In line with the term business, average daily traded volumes grew by 56% year-on-year, with a 51% increase in GC Pooling and a 58% increase in the Repo market. Special repo trading volumes in German government bonds (Bunds) more than doubled compared to 2021.
In December, the average daily traded volume in GC Pooling increased by 25% to almost €20 billion daily compared to November. Compared to December last year, CG Pooling increased by more than 150%. This shows that due to higher interest rates and TLTRO repayments, the need for bank financing and financing products like GC Pooling is increasing. The increasing number of clients regularly trading with GC Pooling also reflects this.
At the end of December, liquidity was quite low for short maturities over year-end, with the average rate for Spot Next on 28 December at about 1.80%, while the overnight rate on 30 December was 0%. In GC, core government bonds in Spot Next traded over year-end at an average of -0.74%.
In Special Repo, year-end preparations began extremely early in late summer, even earlier than 2021, with term transactions until early/mid-January 2023. With rising demand -especially in Bunds- repo levels “richened” over the year-end and became significantly cheaper after the German Finance Agency announced in October it would increase its own holdings to support the repo market.
Concerning term volumes, we saw constant business with end dates until January 2023, which was also reflected in the increase of term-adjusted volumes in the repo market in Q4 (+38% compared to Q4 2021). However, these activities slowed down in December, as most clients seemed to have covered most of their positions by then. The average daily traded volumes in the repo market declined by 14% compared to November.
The volume of Spot Next trades over year-end in Bunds was about 22 % lower than in the previous year, while repo rates against the €STR fixing were quite similar. German government bonds traded in Spot Next around -2.09% (€STR -3.98% vs. €STR -4.03% in 2021).
In the SSA (sovereign and supranational agencies) segment, Eurex Repo also saw strong growth over the year, with a 20% increase in traded volumes, mainly due to a very high increase in EU bond trading volumes (+128% vs. 2021).