The European Repo and Collateral Council (ERCC) of the International Capital Market Association (ICMA) has today released the results of its 41st semi-annual survey of the European repo market. The survey, which calculated the amount of repo business outstanding on 9 June 2021, from the returns of 59 financial institutions sets the baseline figure for European market size at a record high of EUR 8,726 billion up by 5.3% from EUR 8,285 billion in the December 2020 survey.
The increase was driven by new issuance by many governments, which was up in both gross and net terms compared to the second half of 2020. Higher issuance was reflected in increased secondary cash bond market turnover in several countries, feeding into the repo market. Increased repo trading also reflected heavy shortselling in anticipation of possible interest rate rises in the UK and a start to the ‘tapering’ of QE in the eurozone.
Among the key findings of the survey:
- Increased share of GBP in the survey sample in line with the growth of repos of UK government securities, which now provide the largest share of European repo market collateral.
- Reduced role of German government securities as collateral, attributed to scarcity created by asset purchases by the Eurosystem and friction in the official securities lending programme. Scarcity of many eurozone government securities means that turnover in the repo market is driven largely by the search for specific securities.
- Share of securities issued by EU institutions being used as collateral stands at just 0.3% of the survey total but this is equivalent to 8% of the total EUR 259 billion outstanding at the time of the survey, indicating that the repo market has been playing a significant role in the distribution of these securities.
- The value of automated D2C trading electronic repo trading continued to grow strongly reflecting the continued impact of working from home.
- Tri-party repo continues to be crowded out by central bank liquidity. The survey contains a detailed analysis of tri-party repo data from all the surveys since 2004.