February ranks as another strong month in terms of repo trading volumes, wrote Frank Gast, managing director of Eurex Repo, in a market briefing. Across all Eurex Repo markets, average daily term adjusted volumes rose by 11.2 % compared to 2021.
Year-over-year (yoy) the Special Repo market grew by 24.6% in February: strong trading in Euro government bonds was primarily responsible for this growth. The high volatility of the bond futures, the widening of bid/offer spreads, the flight-to-quality collateral and the new geopolitical situation led to some tension in the repo market, making finding paper to cover trades via the repo market more challenging and expensive.
Especially in German government bonds, Eurex Repo saw an increase of “specialness” until mid of February (for various reasons, e.g., supply-demand imbalance, larger short base, positioning, etc.), with more than 30 ISINs and more than 90% of traded volume in Bunds were below -1%. Average daily traded volumes in German government bonds increased YoY by 50% and 22% versus January.
While there is no funding crisis, there are liquidity draining market dislocations. Some German government bonds, such as the BKO 0 03/15/24 and the BKO 0 12/15/23, were in high demand and traded up to a negative 7.5%. While there is a hunt for high-quality collateral, Bunds are trading at the biggest premium to swaps in years. The German Finance Agency responded quickly by increasing the supply of particularly hard-to-borrow bonds to avoid a collateral squeeze.
GC Pooling volumes in the first two months of 2022 were at the same level as the previous year.
The positive trend for EU Bonds continued in February, with a 126% increase compared to the monthly average traded volume in 2021. The total volume of EU bonds traded in February (€6.5bn/$7.1bn) was almost unchanged compared to January, whereas average daily traded volumes increased in February by 4.2%, mainly driven by higher activity in Special Repo (+8.5%).
Overall traded volumes in Supranationals & Agencies (€24.2bn) is the highest Eurex Repo has seen in recent months. Compared to the 2021 average, trading volumes increased by 32%.
Settlement efficiency at Eurex Clearing remained unchanged and on high levels after introducing the CSDR penalty regime. In GC Pooling, 100% of trades were settled, while the settlement success was 97.09% in the repo market.