Risk: Eurex and LCH face headwinds from bilateral market comeback

Buy-side firms are icing repo clearing plans as spreads tighten, and the resurgent bilateral market is resulting in headwinds for services at Eurex and LCH.

In 2017, a regulatory-driven year-end balance sheet clampdown from dealers in the bilateral market meant liquidity was scarce, and prices soared. For the first time, the buy-side started to take the idea of clearing their trades seriously.

A year later, things have completely turned around. Users say spreads on bilateral UK government bond repo are 12 basis points tighter, after a progressive decline.

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