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Securities Lending Market Report | H2 2024

Looking Ahead

While 2024 will be viewed as one of the tamest in terms of market risk for a number of years, 2025 will see several
events which could lead to disruption in the wider industry.
Donald Trump’s return to the White House in January A return to prolonged periods of higher equity valuations
with promises of “America first” policies and subsequent pressuring bank balance sheets should maintain borrower
tariffs placed on key trading partners will be sure to drive demand to utilise these assets as collateral. This will ensure
uncertainty. The Trump 2.0 administration will likely see they optimise long collateral positions as efficiently as
prospective banking regulations wound back, leading to possible, while easing concerns around GSIB scores, and
a friendlier regulatory capital landscape, though at the regulatory metrics such as the Liquidity Coverage Ratio
same time adds a layer of ambiguity. Meanwhile, political (LCR) and Net Stable Funding Ratio (NSFR). Accepting
instability in Europe will make it harder for governments main-index equity collateral will remain a key revenue
to reach policy consensus, threatening to push sovereign generator.
yields higher.
Lastly, we expect the momentum observed in client-
As of January, economists are increasingly torn as to the directed trading to continue into 2025 as opportunities to
direction of the Federal Reserve’s interest rate policies, accept esoteric collateral from trusted top-tier borrowing
though most favour the higher-for-longer narrative as counterparts present themselves. This is typically via Narrowing cross-currency basis swaps are
tariffs and proposed tax cuts prove inflationary. If the rise segregated and ringfenced structures with certain lending
in US treasury yields reaccelerates, we should expect to see clients comfortable adding moderate exposures without full likely to remain as converging central bank
renewed volatility along the yield curve and robust specials indemnification. Asset owners with buy-to-hold sovereign
activity as a consequence. bond portfolios benefit from a material revenue increase, interest rate policies and less troublesome
with robust margins applied to collateral, and loans to the
The US debt ceiling will also come back to the fore, met highest-rated global counterparts in our borrower roster.
with a reduction of treasury bill issuance ahead of the geopolitical concerns negate the need for US
x-date (the point at which the government runs out money)
in the middle of the year. This will boost excess liquidity, dollar funding.
leaving markets flush with cash, thus providing a cap on
repo rates as money funds pivot out of T-bills into the RRP
and FICC sponsored activity.
Narrowing cross-currency basis swaps are likely to remain
as converging central bank interest rate policies and less
troublesome geopolitical concerns negate the need for
US dollar funding. The USD/JPY basis has long been a
key revenue generator for holders of USD-denominated
assets, though easing Fed policy rates at a time of hawkish
actions from the Bank of Japan have narrowed the currency
arbitrage opportunity. There remain pockets of demand
during regulatory-sensitive periods, while counterparts
remain active in pledging Korean Treasury Bonds (KTBs)
when macro-economic conditions allow.