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Securities Lending Market Report | June 2022

Fixed Income

>>> Europe Fixed Income

With good volumes and spreads from the end of Q4 usually dissipating post year end it was an unusual sight to see bonds
still trading well in the first quarter.
With the ECB and Bank of England maintaining their bond The Bank of England followed the Federal Reserve’s lead,
buying programs, spreads in bunds and gilts remained wider hiking 100bp in four consecutive meetings, and the ECB
than normal with the former trading particularly special at gave quite firm guidance as to their intentions to hike 50bp
times and gilt specials remaining at or near the Standing when bond buying finished. To that effect they closed the
Repo Facility levels despite the rate rises. Pandemic Emergency Purchase Program (PEPP) and planned
to hurry the scale back of the Asset Purchase Program (APP)
With most eyes firmly on future tightening and interest rate
rises, the combination of the war and its effect on energy whist increasing the volume in the short term. The global
prices and Central Bank easing, alongside the existing interest rate action had an effect on HQLA swap trades,
disruption from Brexit and Covid, meant that Central Bank with the most active USD vs JPY trade increasing in spread
action to calm inflationary pressures was and will continue towards half year end.
to be theme for some time going forward.

Fig 2 - DataLend

European Government Bond Market

Corporate debt which had already begun the year with
1.20 0.40 some volatility with the events of the last two years
Lendable Value (Trillions €) 0.80 0.25 On-Loan Value (Trillions €) travel and retail was further compounded by the so called
0.35
1.00
having caused stress, especially in sectors like property,
0.30
weaponization of gas causing stress in some emerging
0.60
0.20
economies like Hungary, Poland and the Czech Republic.
0.15
0.40
With higher rates now inevitable, the pressure has
0.10
increased on emerging market countries and companies
0.20
-
-
We have seen some illiquidity and wider spreads in issues
Jan 2022 Feb 2022 Mar 2022 Apr 2022 May 2022 Jun 2022 0.05 that have traditionally relied on cheaper USD funding.
from Brazil, Panama and Colombia to Turkey, Egypt and
Group Lendable On-Loan Balance Indonesia.