Repo participants report that liquidity in the repo market for Asia international bonds continues to deepen, with more lenders coming into the market and a greater ability for dealers to access specific names. This has also been helped by higher rates, which creates the opportunity for more spread from lending specials, as well as increased market volatility and demand to cover short positions, wrote the International Capital Market Association in a recent report.
The fact that in Asia there is not the same culture for tolerating settlement fails as there may be in other markets, repo rates can become extremely expensive, trading well below 0%, particularly for credits experiencing stress. A number of bonds issued by China real estate companies, for example, are reported to have traded in a range of -3% to -20% during 2023.
While overall repo and lending activity remains buoyant, as can be seen in lending balances, activity, unsurprisingly, follows closely trading activity in the underlying market, and has therefore declined over the course of 2023.