Eurex Repo’s Gast on August market activity and new clearing members

August 2023 was another strong month for Eurex’s repo markets, especially considering the summer period. Term-adjusted volumes reached an impressive €358 billion ($385bn). Comparing August 2023 to the same month last year, we witnessed a remarkable increase of 49%, writes Frank Gast, managing director and member of the Management Board at Eurex Repo, in a market briefing.

The ongoing tightening of monetary policy by the European Central Bank (ECB), leading to higher interest rates and targeted longer-term refinancing operations (TLTRO) III repayments, notably boosted demand for repo transactions. The GC Pooling market, in particular, thrived in this environment, achieving average term-adjusted volumes of €201.3 billion for August, more than three times higher compared to the previous year.

Outstanding volumes for the first eight months of this year surged by 67% compared to the same period last year. This growth reflects the robust functioning of the market and the ample liquidity available to meet the needs of market participants. Notably, GC Pooling’s outstanding volume soared by an astonishing 103%, underlining the strong market dynamics. The Repo Market also demonstrated substantial growth, increasing by nearly 50%.

In August, the spread between the overnight GC Pooling EXT and the ECB basket widened slightly from 2.3 bps to 3.2 bps. Meanwhile, the €STR spread versus the ECB basket remained largely stable, averaging +3.7 bps. Simultaneously, the €STR versus the ECB extended basket widened from 6 bps to 7 bps on average in August. Overall, high-quality collateral remains relatively “cheap.”

Despite this trend towards “cheapening” of collateral and less “specialness” in the market, the average trading volume for Bund specials increased year-to-date (YTD) by a remarkable 18%.

The impressive increase in GC Pooling term-adjusted volumes of 126% YTD is primarily driven by 9- and 12-month trades, particularly within the ECB basket. Term-adjusted volumes in the repo market (GC and Special) also saw a YTD increase of 43%. This growth was mainly fueled by term trades in specials, including one-month trades in Spanish government bonds and high volumes in non-standard terms, extending until the end of September, mid-October, and even the end of December. Italian BTPs saw the highest volumes in these terms, followed by French, Spanish, and German government bonds.

Eurex Repo also signed on new Direct Clearing Members — Danmarks Nationalbank and Palafox Trading, a subsidiary of Citadel — as well as new ISA Direct members, ASR Levensverzekering, Clearstream Holding, and DeVolksbank.

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