6th Summit for an Enlarged Europe · 6th Summit for an Enlarged Europe. Andreas Biewald Treasury Recent developments in the European Repo Market . Andreas Biewald Treasury 2805.2010

Andreas Biewald Treasury

27 / 28 May 2010

6th Summit for an Enlarged Europe


Recent developments in the European Repo Market

2Andreas Biewald Treasury 2805.2010

24 March 2010: Fitch downgrades Portugal’s credit rating (new AA-)

09 May 2010 EU/IMF approve € 750 billion rescue package

04 May 2010: Greek protesters storm the Acropolis as markets looses faith

02 May 2010: Greece granted € 110 bn aid to avert financial meltdown (IMF / EC / ECB)

28 April 2010 S&P downgrades Spain’s long term credit rating (new AA)

27 April 2010 S&P cuts Greece credit ratings to junk status (BB+)S&P downgrades Portugal’s credit rating ( A-)

23 April 2010: Greek activates € 45 bn EU/IMF loans

22 April 2010: Moody’s cuts Greece’s sovereign rating to A3

19 April 2010: Greek borrowing reaches record high (455 bp)

16 April 2010: Greek governments admits that it may need help from IMF

11 April 2010: EU ministers agree Greek’s bailout terms

04 April 2010: Fitch downgrades Greece’s credit rating (new BBB-)

29 March 2010: Greece struggles on after weak response to 7 yr GGB bond sale

4 March 2010: 10 year GGB bond sales proves popular

3 March 2010: Greece unveils radical austerity package

.

Key events March – May 2010


Selected 3M Repo Rates vs. EONIA

-20

-15

-10

-5

0

5

10

29/0

3/10

31/0

3/10

02/0

4/10

04/0

4/10

06/0

4/10

08/0

4/10

10/0

4/10

12/0

4/10

14/0

4/10

16/0

4/10

18/0

4/10

20/0

4/10

22/0

4/10

24/0

4/10

26/0

4/10

28/0

4/10

30/0

4/10

02/0

5/10

04/0

5/10

06/0

5/10

08/0

5/10

10/0

5/10

Eurepo Germany Frankreich Belgien Italien Länder & Jumbos ECB

Source: Commerzbank Treasury – Secured Funding Desk


Selected 3M Repo Rates vs. EONIA

-20

-15

-10

-5

0

5

1029

/03/

10

31/0

3/10

02/0

4/10

04/0

4/10

06/0

4/10

08/0

4/10

10/0

4/10

12/0

4/10

14/0

4/10

16/0

4/10

18/0

4/10

20/0

4/10

22/0

4/10

24/0

4/10

26/0

4/10

28/0

4/10

30/0

4/10

02/0

5/10

04/0

5/10

06/0

5/10

08/0

5/10

10/0

5/10

Eurepo Germany Frankreich Belgien Italien Länder & Jumbos ECB

Source: Commerzbank Treasury – Secured Funding Desk

Fitch downgrades Greece‘ CR

1. Greek bailout terms approved

Strong increase in Greek‘s CDS

S&P on Portugal, Greece & Spain

EU/IMF package


Turnover in € Repo on selected ECNs

-

50,000

100,000

150,000

200,000

250,000

01/0

3/20

10

08/0

3/20

10

15/0

3/20

10

22/0

3/20

10

29/0

3/20

10

05/0

4/20

10

12/0

4/20

10

19/0

4/20

10

26/0

4/20

10

03/0

5/20

10

10/0

5/20

10

MTSBTEC EUR

Volume in million Euro per trade day.

Data provided by ICAP and MTS


Observations & concluding remarks

• Spread Widening AAA / AA Government Paper versus A Paper driven by limited risk appetite of market participants (correlated risk & flight to quality)

• Return of ‚special‘ markets particularly in Germany

• ECB Paper issued by Non PIIGS countries trade at unchanged spread levels

•Outperformance of Covered Paper versus Governments in Spain

• Establishment of new classes for repos in EIB / KfW / Non PIIGS Municipals (increase in turnover, spread tightening)

•Liquidity in the repo market not effected -excl PI(I)GS


Commerzbank’s business model


Commerzbank‘s Treasury Set- Up

FX Swaps Active usage of the swap market to manage core currencies

Money Markets•Managing the Liquidity Profile•Providing access to unsecured Money•Access to central banks

Repos• Support short term

liquidity steering• Providing collateral

for central bank operations

Liquidity Management


Pool Concept Treasury

Raise cash in the unsecured market in home currency or in the swap market

Place access liquidity in the repo market

Manage short term liquidity by both products depending on market opportunities

Broader list of counterparties for liquidity management (more counterparties for secured and unsecured businesses than for unsecured only)

Enhanced funding / investment opportunities along the entire curve

Principles


Pool Concept Treasury

Advantages

Secured cash management as an alternative to the unsecured money market

Access to term funding if required through participation in regular central bank auctions or emergency central bank auctions

Re-use of collateral against central banks

Re-use in triparty

Re-use of collateral for intraday liquidity needs (payment services, settlements)


Treasury Desk

CCP (LCH-Clearnet,

Eurex, MTS and others)

CommerzbankTreasury

BanksCorporate

Retail

BanksFunds

Cash +Collateral

Cash

Securities Lenders

F

R

A

N

C

H

I

S

E

Central BanksECB - FED - BoE

Triparty (CBL)

Cash vs. Collateral

Cash +Collateral

Cash +Collateral

Cash +Collateral


Outlook: The future lies in a cross – asset class approach

Equity

Cash

Fixed Income

Listed Products

Commodities


Outlook for Central & Eastern Europe


Experience of the market participants


Liquidity in the collateral market Liquidity in the

collateral market Legal Framework

(GMRA)Legal Framework

(GMRA)

Re-use facility of collateralwith central banks

Re-use facility of collateralwith central banks

Electronic Trading Systems / active broker

coverage


coverage

Key Factors

of Success

Key Factors

of Success


Central BanksCentral Banks

• The reasons to use repo are as diverse as the financial institutions in the market

• Investment opportunities• Liquidity management• Investment opportunities• Liquidity management

• Yield enhancement• Investment opportunities• Yield enhancement• Investment opportunities

• Financing positions• Yield enhancement• Investment opportunities

• Financing positions• Yield enhancement• Investment opportunities

BanksBanks• Yield enhancement• Investment opportunities• Financing positions

• Yield enhancement• Investment opportunities• Financing positions

• Yield enhancement• Hedge liabilities• Investment opportunities

• Yield enhancement• Hedge liabilities• Investment opportunities

Insurance Cos.Insurance Cos.

Pension FundsPension Funds • Yield enhancement• Investment opportunities• Yield enhancement• Investment opportunities

CorporationsCorporations

Money FundsMoney Funds

Market Participants

•Central & Eastern Europe:Repo market in the early stages Correlation risk




• Appendix for jurisdiction

•Croatia

• Czech Republic

•Estonia

•Hungary

•Latvia

•Lithuania

•Poland

•Slovakia

•Slovenia

•Croatia

• Czech Republic

•Estonia

•Hungary

•Latvia

•Lithuania

•Poland

•Slovakia

•Slovenia

Global master Repurchase Agreement

•Central & Eastern Europe :Basic legal framework in place

Legal Framework (GMRA)

Legal Framework (GMRA)


• Pricing of collateral • Regular issuance of Government bonds • Issues in size• Liquidity of the Government Bond market• Active Market Making

• Regular issuance of Government bonds • Issues in size• Liquidity of the Government Bond market• Active Market Making

The collateral market (Governments) Liquidity in the

collateral market Liquidity in the

collateral market


• Cash Bond Market covered by MTS • Cash Bond Market covered by MTS

Electronic Trading Systems

•Central & Eastern Europe :Basis for electronic trading in selected markets


coverage


coverage

•Liquidity in Repo Market on MTS limited (Hungary, Lithuanian, Poland, Slovenia)•Liquidity in Repo Market on MTS limited (Hungary, Lithuanian, Poland, Slovenia)

•Market Making •(Hungary, Lithuanian, Poland, Slovenia)•Market Making •(Hungary, Lithuanian, Poland, Slovenia)


Central Banks Re-use facility with

Major Central Banks Re-use facility with

Major Central Banks

• FED (Foreign Government Bonds, denominated in Euro, USD)• FED (Foreign Government Bonds, denominated in Euro, USD)

•ECB (Foreign Government Bonds, denominated in Euro,USD)•ECB (Foreign Government Bonds, denominated in Euro,USD)

•SNB (Foreign Government Bonds, denominated in CHF, Poland & Czech Republic)•SNB (Foreign Government Bonds, denominated in CHF, Poland & Czech Republic)

•BoE (Foreign Government Bonds in EUR, issued by Slovenia)•BoE (Foreign Government Bonds in EUR, issued by Slovenia)


Andreas BiewaldHead of Funding

Tel.: +49 69 136-49695Fax: +49 69 136-29851Mail: [email protected]

Geschäftsräume:Mainzer Landstr. 15360327 Frankfurt/Main www.commerzbank.de

Postanschrift:60261 Frankfurt/MainTel.: +49 69 136-20Mail: [email protected]

mailto:[email protected]

http://www.commerzbank.de

mailto:[email protected]

Documents

6th Summit for an Enlarged Europe · 6th Summit for an Enlarged Europe. Andreas Biewald Treasury Recent developments in the European Repo Market . Andreas Biewald Treasury 2805.2010