Fixed Income Clearing Corporation (FICC) volumes climbed back to the 600 billion per day range in September with the return of a handful of specials in the market, but the biggest story is the continuing shift from Committee on Uniform Security Identification Procedures (CUSIP) funding to general collateral (GC) and general collateral financing trades (GCF). September was the first full month of Bank of New York (BONY) clearing for all GCF firms. Regular start trading continues to gain momentum as we edge closer to November 15, when firms begin paying for their Capped Contingency Liquidity Facility (CCLF) obligations.
Federal Open Market Committee (FOMC) and quarter end dominated trading activity in late September. Market expectations have priced in a ¼ bp tightening move per quarter through the first half of 2019. The Treasury is also expected to continue raising more cash in the upcoming quarters after a slowdown in September. The System Open Market Account (SOMA), the Fed’s borrowing facility for UST Cusips, has pared down its take down of active issues, an encouraging development for UST specials.
Repo activity picked up considerably in September after a strong but more subdued August. Straight from the first week, nominal volumes crept back up into the €280 billion+ regularly, peaking at a high of €288 billion. As the market reached quarter-end with relative ease and no major disruption in funding, BrokerTec saw a record ticket count by some considerable margin when spot-next trading took us over the QE turn, with 11,868 trades. Against last year, BrokerTec is 10% up on average number of trades per day. Our nominal ADV for the month was a record equaling €269 billion vs €261 billion in August.
Term volume also improved significantly as was expected – over half of the days in September came in above €300 billion. In UK Gilts, DBV volume took a jump midway through the month, where at one point it reached over £12 billion. Similarly, after a quiet spell in the EuroGC+ product, we saw this market tick back up to levels more in line with those pre-summer.
Elsewhere, the US/China tariff ‘wars’ continue, although it seems that the market is becoming more familiar with these headlines, and thus recovers shortly afterwards. The Bank of England left rates unchanged at 0.75 and voted unanimously to do so. Ongoing tightening is likely to be needed and any future rate hikes will be limited and gradual. Brexit uncertainty lingers and remains a key concern for the market. The Fed announced a rise of 0.25 to their base rate, with stocks & treasuries performing well as a result. Political volatility resurfaced again in late September for Italy and the European markets are keeping a close eye.