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turn has had a knock on impact on securities lending fee When we examine specific trends in the North American
Fig 9 - US Treasury Bonds On-Loan
levels in this market. government bond market, there was something of a
resurgence in borrowing ahead of the half year (Fig 9).
In terms of revenues, government bonds have always This slight movement against the downward trend that 630B
been something of a poor relation compared to the we have seen since the start of the year, may be in part
fees generated by equity securities lending. Although attributable to a rise in the US Dollar liquidity premium.
government bonds consistently account for circa 45% This increased into the half year, which led to wider cross-
to 50% of all securities on-loan, they typically account currency basis swaps and counterparts looking to source
for only around 15% of all fees generated globally. In the US Treasuries
first half of 2019, the growth in available supply combined US Treasury Loan Volume (Market Value)
with the slowdown in demand for HQLA in Europe, In contrast, the spike that we saw in Europe into the half
resulted in a 24% fall in reported fees compared with the year end (Fig 8) may have been owing to borrowers who
same period in 2018. were long equity securities, and were looking to effectively
swap them for government bonds via the securities
The position is also likely to have been compounded as lending markets for balance sheet and reportable Risk
clients who set minimum lending thresholds to lend their Weighted Asset (RWA) purposes.
570B
securities, saw falling levels of utilisation as the market
Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019
failed to meet their minimum lending criteria. This idea tends to be supported when reference is made
to the collateral composition of the European government Source: FIS Global
Although we did see something of a general tightening of bond lending market (Fig 10).
the demand profile for this market, we did see something 45% seen over the year end, we have already discussed and five of these rules will demand engagement from a
of an anomaly ahead of the half year. In the final The very clear increase in non-cash collateral trades into how the end of QE programs globally is a likely factor broader array of buy-side clients, who have not previously
trading day, reported on-loan balances of government the half year tends to confirm that most of this activity in that fall. That fall in demand is likely to be temporary had to address these issues.
bonds increased by over €62 billion. This sudden was balance sheet related. though. In 2020, new rules relating to uncleared margin
spike was seen in both North America and Europe, requirements will drive significant and new demand for We therefore expect exponential growth in this area. As
although it is possible that more than one factor was at Today, government bonds represent circa 43% of all collateral, including HQLA. Whilst the market is still trying we have seen in previous reports, the government bond
play here. securities on-loan. Whilst this is marginally down on the to assess the quantum of these requirements, waves four lending market continues to be a predominantly non-

Fig 8 - European SL Government Bond Market Fig 10 - European SL Government Bond Market - Cash Versus Non-Cash

€900k €330k €32k €300k

Total Lendable Assets (M) On-Loan Balance (M) On-Loan Balance vs Cash (M) On-Loan Balance vs Non-Cash (M)

€800k €260k €0k €240k
Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019 Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019
Source: IHS Markit Source: IHS Markit

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