Clearstream’s Marton Szigeti and Eurex Repo’s Frank Gast explain how Deutsche Borse Group’s cleared and uncleared repo services are helping cash lenders and borrowers to meet their liquidity needs across a wide range of market conditions.

Geopolitics is currently front of mind for Europe’s financial authorities as they navigate the sector through a period of complex monetary readjustment. Conflict in the Middle East, Russia’s invasion of Ukraine and US-China tensions over Taiwan are just some of the political drivers which have reinforced financial uncertainty during this phase of post-pandemic adaptation. 

These geopolitical tensions are superimposed on a period of central bank monetary ‘normalisation’ which featured the most aggressive tightening phase in the ECB’s history, prior to its four successive 25bps cuts since June 2024. 

Against this background, Frank Gast, managing director, Eurex Repo, and global head of repo sales at Eurex, highlights three key trends that have defined activity levels through Eurex Repo during 2024. These are a contraction in levels of excess liquidity in the euro area, the easing of concerns around collateral scarcity, and increasing participation of buy-side firms in cleared repo.

“In the financing markets, we see a change of direction as a result of the reduction in excess liquidity,” he explains. “This has created an apparent contradiction where, even though there is still more than €2.8 trillion in excess liquidity outstanding, there are questions around whether there are enough players willing to lend cash in the European repo market.”  

Cleared repo on elevated levels

At its peak, excess liquidity hit record highs of close to €4.7 trillion in 2022, but this has contracted as banks have repaid their loans taken under the third series of Targeted Longer-term Refinancing Operations (TLTRO) and the ECB has choked off reinvestment of the proceeds of bonds maturing under its asset purchase programme. 

With the ECB adjusting its remuneration cap for non-bank deposits in May 2023, such that non-banks receive a ceiling of €STR-20bp on cash deposits placed with their national central banks, this prompted non-banks to seek alternative channels to deliver a more attractive yield on their cash. 

This confluence of factors resulted in a major step up in activity through Eurex Repo during late 2022 and 2023. For the full year 2023, the average daily term-adjusted repo volume increased by 70% relative to 2022, climbing from €210.3 billion to €357.8 billion. The GC pooling market expanded by 142% YoY over this period, while the Special Repo market grew by 38% YoY. 

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