From Cash- to Securities-Driven Euro Area Repo Markets: The Role of Financial Stress and Safe Asset Scarcity

66 Pages Posted: 1 Feb 2019

See all articles by Claus Brand

Claus Brand

European Central Bank (ECB)

Lorenzo Ferrante

European Central Bank (ECB)

Antoine Hubert

European Central Bank (ECB)

Date Written: January 31, 2019

Abstract

Focusing on repo specialness premia, using ISIN-specific transaction-by-transaction data of one-day maturity repos, we document a gradual shift from cash- to securities-driven transactions in euro area repo markets over the period 2010-2018. Compared to earlier studies focusing only on specific sub-periods or market segments we extend, illustrate, and validate evidence on financial frictions that are relevant in driving repo premia: controlling for a comprehensive range of bond-market specific characteristics, we show that repo premia have been systematically affected by fragmentation in the sovereign space, bank funding stress, and safe asset scarcity. These channels exhibit very strong country-specific differences, as also reflected by large discrepancies in country-specific interest rates on General Collateral. To ensure robustness of our empirical findings, we apply panel econometric and data mining approaches in a complementary and mutually informative way.

Keywords: monetary policy, repo market, bond specialness, big data, machine learning

JEL Classification: E52, E44, C33, C38

Suggested Citation

Brand, Claus and Ferrante, Lorenzo and Hubert, Antoine, From Cash- to Securities-Driven Euro Area Repo Markets: The Role of Financial Stress and Safe Asset Scarcity (January 31, 2019). ECB Working Paper No. 2232 (2019) ISBN 978-92-899-3494-7 . Available at SSRN: https://ssrn.com/abstract=3327170

Claus Brand (Contact Author)

European Central Bank (ECB) ( email )

Eurotower
Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+0049 69 13440 (Phone)
+0044 69 1344 6000 (Fax)

Lorenzo Ferrante

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Antoine Hubert

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
55
Abstract Views
279
rank
390,010
PlumX Metrics