The ICMA European Repo and Collateral Council (ERCC) has published a report on the performance of the European repo market at year-end 2021, focused on the euro, sterling, US dollar and Japanese yen markets and based on market data and accounts provided by market participants (both sell-side and buy-side). This is the 6th in the series of annual reports, following the analysis of dislocations in the euro denominated repo market at the end of 2016.
The general view of market participants is that the year-end for the euro repo market was relatively orderly from an operational perspective, particularly for core sovereign collateral, where, along with significant pre-positioning, central bank lending programmes are likely to have played an important role. That said, this was still the most expensive year-end for core repo since 2016, and certainly saw the lowest rates for the most sustained period leading up to any year-end. Meanwhile, non-core repo rates, somewhat unexpectedly, were even tighter than at year end 2016, making this the most expensive turn since the euro was launched. And while the levels of stress experienced at the 2016 year-end were not observed in 2021, some participants have expressed concern at the extreme levels recorded, the relative lack of liquidity, and the fact that participants were pre-positioning actively, and expensively, from as early as October.