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Fig 11 - Global SL Government Bond Market - Cash Versus Non-Cash Fig 12 - Global Government Bond Lendable Supply - By Fund Type

€270k €710k Banks/Broker Dealers 2%

On-Loan Balance vs Cash (M) On-Loan Balance vs Non-Cash (M) Corporations, LLP and LLC 3%

Foundation and Endowment 1%

Government/Sovereign Entities/Central Banks 32%
Insurance Companies 9%

Mutual / Retail Funds 23%
€0 €650k
Pension Plans 30%
Jan 2019 Feb 2019 Mar 2019 April 2019 May 2019 Jun 2019
Source: IHS Markit Source: DataLend

cash one. Of the €950 billion of government bonds on- Part of the drivers behind the mobilisation of HQLA in the government bonds within lending programmes came Although this may reflect minimum lending thresholds
loan as at 30 June 2019, 72% were against non-cash context of prudential reporting regimes, is the ability to from SWFs, with the proportion rising to 35% of restricting utilisation as rates have fallen, their dominance
collateral (Fig 11). secure HQLA for periods of three months or more. This reported on-loan balances (Fig 12 and Fig 13). This is in this sector remains.
allows the borrower to include any borrowed securities in fact a further softening of the previous concentrations,
The relationship between this market and the use of non- in its LCR calculation as part of its balance sheet with SWFs representing 33% and 39% of available As we look past Brexit, the role of these institutions
cash collateral is a feature we have tracked for a number management regime. We have tracked the development securities and on-loan balances respectively as at in maintaining deep and liquid markets will
of years. We have discussed in previous reports the link of this term HQLA market for a number of years now, and 30 December. be crucial.
between the lending of HQLA, and regulatory compliance whilst acknowledging the challenges in securing high
with prudential hurdles such as the LCR. quality data in this area, there is a clear and persistent Fig 13 - Global Government Bonds On-Loan - By Fund Type
core of term business that did not exist several years ago.
Recent data from the first half of this year underlines Latest information from DataLend suggests that circa 15%
these relationships, and the importance of securities of all government bond lending is undertaken on a term
lending to banks in managing their prudential positions. basis, although we feel that this number is understated
Banks/Broker Dealers 10%
The spikes in utilisation around the end of March and with the real number being much higher, possibly as
again in June were almost exclusively against non- high as 50%.
Corporations, LLP and LLC 2%
cash collateral, suggesting a regulatory driver behind
these trades. As we look at the role that the lending of government Foundation and Endowment 1%
bonds plays in the context of market liquidity, the
From our previous work in this area, we know that most mobilisation of HQLA is becoming increasingly important Government/Sovereign Entities/Central Banks 35%
term HQLA business is undertaken within a non-cash in the context of wider collateral usage. Set against
framework. It is therefore not surprising that banks that backdrop, we have tracked the supply-side of the Insurance Companies 7%
wanting to keep these important regulatory trades on, are market for some time now to better understand the link
clearly prioritising them over the regulatory reporting date. between key institutional investors and the provision Mutual / Retail Funds 13%
Additionally, cash reinvestment opportunities are typically of liquidity.
limited in nature as the availability of unsecured issuance Pension Plans 32%
and repo dries up when bank balance sheets contract As at the end of June 2019, data from DataLend
over reporting periods. suggests that some 32% of available inventory of Source: DataLLend

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