26th January 2023 – The ICMA European Repo and Collateral Committee has published its annual analysis of how the repo market performed over the recent year-end: The repo market at 2022 year-end.

The 2022 euro “turn” was being discussed as early as the summer, with underlying concerns related to the ongoing situation of excess liquidity in the banking system, scarcity in some collateral (notably German government bonds), and seasonal curbs on repo market-making capacity. By late September, the implied repo rate for German collateral over the three-day turn was somewhere between ESTR-800bp and ESTR-1,000bp, prompting many stakeholders to raise concerns publicly as well as with the ECB.

The report shows that pricing over year-end improved significantly in the weeks leading up to the date, and once we got to December 28, German collateral (both general collateral and specific collateral) averaged around ESTR-350bp (with some specials trading wider than ESTR-400bp), French collateral around ESTR-290bp, and Italian collateral around ESTR-195bp. Perhaps the biggest surprise was Spanish collateral, which had become trickier to source going into December, and which averaged around ESTR-300bp over the turn.

There are several potential factors that helped to contain the extent of the year-end repo market price dislocation. These include the October announcement of the Deutsche Finanzagentur that it would make available on repo an additional €54bn of German government bonds, across 18 ISINs, the increase in the ECB’s borrowing facility against cash from €150bn to €250bn, and the large repayment of the Targeted Long-Term Refinancing Operation on 21 December.

The report also provides commentary and analysis of year-end for the sterling, dollar, and yen repo markets.

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