Economic turmoil in Europe in the last three months drove strongest demand in the lending markets for government bonds, new research from Data Explorers has found.
With ongoing turmoil in the fixed income market globally, the company found that the total supply of bonds in lending programs has decreased 9% to around $5.1 trillion dollars in the three months leading up to the start of January. Looking on the demand side, it found there was a 7% fall in loans, driving utilization higher. This has in turn helped fuel an increase in income generated by lending programs despite a fall in fees.
European bonds have seen the most in the way of turmoil over the last three months, with every sovereign bond, except for Finland, seeing a fall in the value of their assets held in lending programs, said Data Explorers. Amongst the sovereign bonds in lending programs to have witnessed the largest declines in value are Greek (-72%), Portuguese (-47.5%), Slovenian (-39.2%) and Italian (-35.4%).
On the demand side, Data Explorers noted a decrease in the value on loan of government assets of nearly 10% to $392 billion. Bucking the trend, Hungarian bonds witnessed the largest increase in loans which saw a 24.3% increase in loans to $1.3 billion.
From the inventory held by long only investors, Data Explorers found the largest demand to borrow came from investors looking to borrow Slovakian bonds, which saw 60.5% of the lendable supply out on loan (utilization). Its research showed there was strong demand to borrow French, German and UK bonds, which recorded utilization levels of 42.1, 47.5 and 47.4% respectively; this demand is no doubt driven by investors looking to use bonds as collateral in repo and other finance transactions, it said. Overall there was a 1.7% increase in the European sovereign bond utilization to 40.7%. The most expensive bonds to borrow were Greek, Portuguese and Slovenian bonds.
The US and Canada also recorded falls in value of bond assets held in lending programs while the demand to borrow remained fairly static. The US recorded a 6.2% fall in inventory to $1.1 trillion, whilst Canadian assets stayed roughly the same at $263 billion. Loans stayed roughly flat at $396 billion for the USA and $73 billion for Canada.
(JDC)