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As at end of June 2019, there was just over €950 billion Whilst we have seen additional supply enter the market,
of government bonds on-loan which represented a immediate demand to borrow government bonds has
6% increase from the €900 billion reported as at 31 been, at best, stagnant with global on-loan balances
December 2018 (Fig 7). Notwithstanding the run-off in moving within a narrow 7% corridor of between €880 and
balances ahead of both the quarter-end (30 March) and €950 billion over the first six months of the year. In Europe
the half year, we did see some notable utilisation spikes in particular, there has been a notable fall off in demand
just prior to each of the key reporting dates. In particular, to borrow European government bonds. Fig 8 highlights
reported on-loan balances increased by some 7% over how overall balances for the first six months of 2019 fell
the final trading days of the half year. by over 14% from €314 to €269 billion, whilst available
securities to borrow increased by over 10% from €806
Whilst the reasons driving these utilisation patterns are to €891 billion.
varied and will be discussed later on in this section, it is worth
highlighting that overall borrowing levels seem to have hit Much of the recent decline in demand to borrow European
a resistance level of circa €1 trillion after falls in balances government bonds can be linked directly to the ending
during 2018. of the ECB’s QE program in December 2018. During
the stimulus program, the ECB progressively bought
The first six months of 2019 saw a steady increase in securities in the open market thereby injecting cash
government bonds being made available for lending by into the system. This inevitably led to a reduction in the
institutional investors. availability of government bonds, with market participants
looking towards the securities lending markets, in part, as
A cocktail of trade tensions and Brexit risks drove bond an alternative source for HQLA type assets. As the ECB
yields to record lows, as investors ignored slightly and other central banks actively sought to make available
stronger economic data to move into so-called ‘haven assets purchased within QE programs back to the market
assets’. These assets appear to be finding their way into through lending programmes, we saw on-loan balances
lending programmes, as these same investors look to increase throughout 2017/8. As these programmes have
maximise overall returns by lending HQLA assets in low unwound, borrowers have turned elsewhere as lending
or negative interest rate environments. has at times looked increasingly more expensive. This in

Fig 7 - Global SL Government Bond Market

€3,000k €960k

Total Lendable Assets (M) On-Loan Balance (M)

Global Government Bond €2,500k €870k
Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019
Markets in Focus Source: IHS Markit

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