The headline feedback from market participants is that the European repo market, for the most part, has ‘held up well’ during the market turbulence stemming from the global COVID-19 pandemic that began in late February/early March 2020. However, this has not been without some strains. In particular, as the demand for repo has increased, banks’ capacity to intermediate has remained constrained.
Recent market disruption has also thrown out a number of technical and operational challenges, including collateral bottlenecks, increased settlement fails, and challenges managing intraday liquidity and collateral. It also highlights the dependence of market functioning on central bank intervention in times of stress.
This special COVID-19 market report reveals that while demand for repo subsequently increased significantly during the height of the crisis in February/March, dealers’ capacity to intermediate that demand was relatively constrained, limiting access to many firms that needed it.