Markets in transition

The European repo market is becoming more important, not less. As liquidity normalizes, sovereign issuance rises and collateral demand grows, repo is moving further into the center of the financial system. The priority now is to deepen the market, broaden access, and improve efficiency – and central clearing will play a decisive role in that evolution.Eurex Repo has reported a strong start to 2026. What factors are driving this momentum, and how much of it reflects structural changes in the European repo market?We have seen a very strong start to 2026, and we would say this reflects both cyclical momentum and deeper structural shifts in European secured funding markets.Overall term-adjusted volumes for the first four months rose by 66 per cent year-on-year (YoY), with GC Pooling (+50 per cent) and the single-ISIN market (+82 per cent) both contributing significantly to this expansion.This reflects not only favorable market conditions after a relatively smooth year-end, but a fundamental transformation of liquidity patterns across the eurozone.A key driver is the continued normalization of the European Central Bank (ECB) balance sheet – or “quantitative normalization”, as Isabel Schnabel describes it – which has shifted the market from collateral scarcity to relative abundance.As excess liquidity declines, banks naturally rely more on market‑based liquidity, particularly secured funding, rather than on central bank reserves. This has structurally increased the relevance of cleared repo and strengthened interbank market depth, with GC Pooling and our Repo market reaching record levels in 2025 and carrying that momentum into 2026.In parallel, banks continue rotating into high‑quality liquid assets (HQLA) for regulatory and liquidity‑management purposes, while investors are financing a growing stock of European government bonds. All of this feeds directly into stronger and more sustained repo demand.Participation has also broadened significantly. Alongside commercial banks, we now see central banks, supranationals, pension funds, insurers, and corporates actively providing or taking liquidity. This diversification enhances resilience and reinforces the growth observed over the first four months.In short, this is more than a strong beginning of the year – it reflects a broader re‑intermediation of liquidity through the market, which is highly supportive for cleared repo and for the role of Eurex within that ecosystem.The ECB is transitioning from a supply-driven to a demand-driven liquidity framework. How is this shift already changing behavior in the European repo market, and what does it mean for the role of cleared repo?The ECB’s shift to a demand‑driven liquidity framework is one of the most significant structural changes for European money markets in recent years.Under this framework, banks are expected to obtain liquidity first through market‑based instruments – primarily repo – and use ECB facilities only for marginal needs.This is already visible in trading behavior: greater use of secured markets, more emphasis on term funding, and wider mobilization of collateral across baskets and maturities.This environment clearly strengthens the role of centrally cleared repo. When liquidity becomes more market‑driven, participants seek reliable access to funding, efficient balance sheet netting, robust risk management, and operational continuity. Central clearing delivers precisely that.The ECB’s own decision to join Eurex’s cleared repo market in 2025 further underscores the importance of central clearing and reflects the institution’s recognition that resilient, transparent market infrastructure is essential for a well‑functioning liquidity ecosystem.With interest rates and inflation still shaping the macro outlook, how are funding conditions evolving in the repo market, and what impact do you expect on volumes and collateral demand through 2026?Funding conditions in the repo market have remained relatively orderly so far, despite a macro and geopolitical environment that is still characterized by uncertainty around rates, inflation, and growth.We continue to see general collateral (GC) pricing close to - or slightly above – the deposit facility rate, overnight spreads remain stable, and term activity is healthy across standard tenors.Looking ahead, we expect overnight rates to edge somewhat higher as excess central bank liquidity declines and sovereign issuance continues to rise. In that environment, repo becomes even more important as a tool to finance this collateral, manage balance sheets, and maintain liquidity buffers.As a result, we expect robust repo volumes to continue across maturities, especially in the term segment where activity is already elevated. The ongoing rotation of banks from cash into government bonds for liquidity coverage ratio (LCR) purposes reinforces the structural demand for repo as a funding and optimisation instrument.Net issuance of European government debt is expected to rise further in 2026. How will this increase in sovereign supply affect repo market activity, particularly across single ISIN, GC, and GC Triparty segments?Higher sovereign net issuance is clearly a positive driver for repo activity. More bonds in circulation mean more financing needs and a deeper pool of eligible collateral.In the single‑ISIN segment, increased supply supports broader and more balanced activity across core and non‑core sovereign markets. We already see this in the strong financing flows in France, Italy, and Spain, and in the emergence of more longer‑dated term structures in our cleared market.In GC, larger government bond inventories support broader collateral mobilization and more balance sheet optimization. That is especially relevant in GC Pooling, where participants benefit from standardization, flexible collateral baskets, and efficient access to liquidity.GC Pooling will continue to play a central role as larger collateral pools need to be financed and transformed efficiently — not only for banks, but increasingly for cash providers such as public sector entities, central banks, and institutional investors that want efficient, operationally simple access to secured markets.GC Pooling continues to be the largest European liquidity pool for secured funding. What are Eurex’s priorities for expanding participation in this segment, particularly among new cash providers such as central banks, corporates, and institutional investors?Our priorities for expanding GC Pooling in 2026 focus on three areas: broader access, operational efficiency, and deeper liquidity.First, we aim to further broaden the ecosystem of cash providers, including central banks, public institutions, corporates, pension funds, insurers, and asset managers. A more diverse liquidity base creates a more resilient market.Second, access models matter. We continue to support dealer‑to‑client channels and scalable entry models such as Select Invest, Select Finance, and custodian‑facilitated access for buy side clients. These reduce operational barriers and allow firms to enter cleared repo without building a full infrastructure from the start.Third, we are focused on product and operational efficiency. That includes further basket development, strong settlement efficiency, reliable intraday liquidity management, and a structure that supports standard as well as term funding needs.GC Pooling already plays a central role in European secured funding, and our objective is to make it even more accessible and relevant for a broader range of both, liquidity providers and cash takers.Non-bank financial institutions are expected to play a larger role in funding markets. What progress is Eurex seeing in bringing buy side firms into cleared repo, and what still needs to happen to accelerate broader adoption?We are definitely seeing progress. Buy side participation in cleared repo has broadened meaningfully over recent years, including pension funds, insurers, asset managers, corporates, and new distribution channels such as so called aggregators. So the trend is clearly moving in the right direction.That said, there is still more to do if we want adoption to accelerate materially.citationOne important area is regulation. Some buy side firms still face constraints in how exposures to central counterparties (CCPs) are treated, and there are also limitations around the use or reuse of cash and collateral for margin purposes. These issues can reduce the economic attractiveness of clearing, even where the risk management case is strong.A second point is the alignment of economics between bilateral and cleared markets. As long as haircut, margin, and balance sheet treatment differ significantly, participants may still see incentives to stay in bilateral structures.And third, ease of access remains critical. Simpler onboarding, efficient client clearing models, and margin methodologies that reflect actual risk can all help accelerate adoption.So the opportunity is very real, and we are already seeing traction - but broader buy side participation will require the right combination of access, economics, and regulation.Collateral management continues to evolve, with new baskets, expanded GC Pooling structures, and an updated margin methodology in development. How will these changes improve flexibility and capital efficiency for market participants?These developments are all about giving participants greater flexibility in how they mobilize collateral and improving the efficiency of cleared funding, including risk-sensitive margining and balance sheet netting opportunities.citationExpanded baskets and broader GC Pooling structures mean firms can fund a wider range of eligible collateral in a standardized way. That reduces concentration risk, improves collateral mobility, and gives participants more optionality in how they manage inventories across jurisdictions and business lines.One example of this expansion is the broader use of the EUR government bond baskets (Germany, France, Spain, and Italy) as well as the EU Bond basket in GC Pooling. These give cash investors greater flexibility to individually manage their exposure to the collateral they receive – a key benefit for buy side clients such as asset managers.At the same time, developments around the Eurosystem Collateral Management System (ECMS) and cross-border collateral mobilization are important because they make it easier to reuse and deploy collateral across the Eurosystem. That is increasingly valuable in a more fragmented European landscape where efficient collateral access is a competitive advantage.The updated repo margin methodology is also a key step. The objective is to maintain robust risk standards while reducing unnecessary margin consumption in many portfolio scenarios. That translates directly into better capital efficiency for participants with diversified single ISIN and GC portfolios.And finally, with the move to T+1 in Europe as per October 2027, we continue to enhance our settlement efficiency and ability to provide intraday repo funding for our clients. So taken together, these changes should make it easier for clients to optimise collateral, lower funding friction, and use the cleared repo market more efficiently.Following the US move to mandate central clearing in parts of the Treasury market, regulators globally are examining similar questions. What would a balanced regulatory approach look like for Europe, and what policy changes would most help cleared repo markets develop further?A balanced European approach should start from the reality that Europe is structurally different from the US. We have multiple sovereign issuers, multiple central securities depositories (CSDs), different collateral ecosystems, and a more fragmented market structure. So a simple ‘copy-and-paste’ of the US model would not be the right answer.In Europe, the more practical and effective approach would be to remove barriers and create incentives for broader voluntary clearing, rather than moving immediately to a mandatory model.That means, first, reducing regulatory frictions for non-bank participants such as Undertakings for Collective Investment in Transferable Securities (UCITS) funds, money market funds, and insurers. Second, it means better alignment between bilateral and cleared market standards, especially around margins and haircuts, to avoid regulatory arbitrage. Third, prudential rules such as net stable funding ratio (NSFR) should better recognize the stability and resilience that centrally-cleared repo can provide.It would also help to encourage greater public sector participation, because central banks and official institutions can play an important anchoring role in market development and resilience.So from our perspective, Europe should focus on building a stronger clearing ecosystem through proportionate policy support, better access, and more consistent regulatory treatment. That would deepen liquidity and strengthen financial stability without forcing the market into a one-size-fits-all solution.Weiter zum vollständigen Artikel bei Deutsche Boerse AG Unsponsored American Deposit Weiter zum vollständigen Artikel bei Deutsche Boerse AG Unsponsored American Deposit