US repo trading activity was impacted by a shortage of specials, low volatility and trader vacations. Volume at Fixed Income Clearing Corporation (FICC) is down $100 billion (per day) from the highs registered last February. In the absence of specials, the composition of the repo market shifted from trading “as the issue” to trading as GC/general collateral financing trades (GCF). The ratio of GCF to the entire FICC market hit a 12 month high in July. General collateral trading is up to an even greater extent. Beginning in the month of August, the Treasury will begin raising more cash to the tune of about $350 billion in new supply through September. This could further exacerbate the macro shift in elevated funding rates that began in April.
Summer holiday trading kicked in and the BrokerTec average daily volume for July was €250 billion vs €269 billion in June. The first two trading days of the Month, the 2nd and 3rdJuly, each registered €265 billion and from the 4th July US Holiday onwards we never broke above €259 billion. The European Central Bank was the only Central Bank to hold a monetary policy meeting in July and on the 26th left rates unchanged and re-confirmed that they are on track to cease QE in December. This was widely expected by the market and did not create any market volatility. Month end passed quietly with zero stress and minimal uptick on short term rates across all countries due to ample liquidity and efficient planning by the Investment Banks on BrokerTec.