Eurex Repo’s Gast on market performance in September

In September 2023, Eurex’s repo markets continued their strong performance, with term-adjusted volumes reaching an impressive €385.1 billion. This marked a remarkable 58.3% increase compared to the same month last year, writes Frank Gast, managing director and member of the Management Board at Eurex Repo in an emailed commentary.

The European Central Bank (ECB) continued monetary policy tightening contributed to this momentum by implementing a 25-basis points rate hike on 14 September, elevating the deposit facility rate to 4.00%. This policy shift significantly boosted demand for repo transactions, resulting in a substantial 95% increase in average traded volume compared to the first nine months of last year. Notably, this surge culminated in a new daily traded volume record on Eurex Repo, surpassing the previous record held since 2011.

The GC Pooling market thrived in this environment, achieving average term-adjusted volumes of €197.5 billion for September, marking an impressive threefold increase compared to the previous year.

Outstanding volumes for the first nine months of this year surged impressively by 66% compared to the same period last year. GC Pooling’s outstanding volume stood out with a staggering 106% increase, underscoring the robust market dynamics. The Repo Market also demonstrated substantial growth, with volumes increasing by nearly 47%.

In September, the spread between the overnight GC Pooling EXT and the ECB basket remained relatively stable, averaging around 3bps. The average spread in the overnight rate between the ECB basket and the €STR fixing declined to approximately 3bps, primarily due to a low GC Pooling rate over the quarter-end (excluding the quarter-end, the spread was around 4bps). A similar trend was observed in the overnight spread of the EXT basket against €STR, which tightened to 6 bps (excluding the quarter-end, it was +6.9 bps).

The quarter-end went as market participants expected, with ample liquidity and trading levels within the anticipated range. Bund specials traded around 16/17 bps more expensively, while other specials “richened” by 13-15 bps.
The STOXX GC Pooling deferred funding rate over the quarter-end stood approximately at €STR -8bps, accompanied by robust turnover.

The remarkable increase in GC Pooling term-adjusted volumes of 137% year-to-date (YTD) was primarily driven by 6, 9, and 12-month trades in the ECB and ECB EXT baskets. Especially notable were the 6-month tenors, trading in the ECB basket at around €STR-swap +3/5bps and in the EXT basket at around +7/8bps. The longest-term trades observed were in the ECB basket, maturing in March 2025.

Term-adjusted volumes in the repo market (GC and Special) also saw a YTD increase of 37%. Unlike September last year, there wasn’t much activity around year-end coverage. Volumes in German Bunds decreased in terms, but this was potentially offset by term trades in other EUR government bonds extending into November and December.

Once again, significant trading volumes were seen in the new ECB terms (the maintenance period from 20th Sep to 02nd Nov), primarily involving Spanish and French government bonds. The longest transactions in the single ISIN market were traded in French govies, extending out to one-year terms.

Additionally, this month saw higher volumes of open repos and open variable rate trades versus €STR (which have been live on Eurex for many years), especially in SSAs and corporate bonds.

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