Frank Gast, managing director at Eurex repo provided a market briefing for July activity.
July continued the 2022 trend of sustained elevated repo market volumes. Daily average term adjusted volume in all markets rose to €197.6 billion in July from €192 billion in June and up from €125.8 billion in July last year. A large proportion of these volumes was fueled by banks continuing to source core Euro govt-collateral, in tandem with a continued rise in GC Pooling volumes.
In German govt Specials, the repo rate for many issues for much of July was beyond -1%. And even after the ECB rate rise, the majority of Bunds were trading below -.70% through month end and remain hard to source with the ongoing demand for quality paper. The average traded volume in Bund Special repo increased YTD by 85% compared to last year’s period.
The increase in ECB policy rates of 50bps at the Governing Council meeting on 21 July led to a re-rating of open repo. Also, for some participants, there was a recalibration of term funding repo as the widespread market expectation had been for a 25bps hike. Since the effective date of the new rates was 27 July, just three days until the end of the working month, the impact of this hike on monthly repo volumes was too short to be identified.
However, from the ECB meeting onwards, we observed fewer term GC Pooling trades with maturity dates beyond mid-September. Further debate concerning rate hikes is likely in anticipation of September’s next meeting.
Average daily traded volumes in the Repo Market segment in July were 74.3% higher than in July 2021, while the average outstanding volume was 63% higher than in July last year. In the SSA segment, the average daily traded volume increased by 15% compared to June, of which EU/NGEU bonds increased by 21%. Compared to 2021, traded volume in EU/NGEU bonds tripled.
Overall daily average outstanding volume on Eurex Repo, including GC Pooling, rose dramatically by 54% compared to July last year. Compared to July 2021, GC Pooling’s average daily term volume has risen by 65% as evolving ECB monetary policy leads to a EUR interest rate curve alongside the potential for eurozone excess liquidity to start declining in the not-too-distant future.