6th Summit for an Enlarged Europe 27 / 28 May 2010 Andreas Biewald Treasury
Recent developments in the European Repo Market Andreas Biewald Treasury
Key events March May 2010. 3 March 2010: Greece unveils radical austerity package 4 March 2010: 10 year GGB bond sales proves popular 24 March 2010: Fitch downgrades Portugal s credit rating (new AA-) 29 March 2010: Greece struggles on after weak response to 7 yr GGB bond sale 04 April 2010: Fitch downgrades Greece s credit rating (new BBB-) 11 April 2010: EU ministers agree Greek s bailout terms 16 April 2010: Greek governments admits that it may need help from IMF 19 April 2010: Greek borrowing reaches record high (455 bp) 22 April 2010: Moody s cuts Greece s sovereign rating to A3 23 April 2010: Greek activates 45 bn EU/IMF loans 27 April 2010 S&P cuts Greece credit ratings to junk status (BB+) S&P downgrades Portugal s credit rating ( A-) 28 April 2010 S&P downgrades Spain s long term credit rating (new AA) 02 May 2010: Greece granted 110 bn aid to avert financial meltdown (IMF / EC / ECB) 04 May 2010: Greek protesters storm the Acropolis as markets looses faith 09 May 2010 EU/IMF approve 750 billion rescue package 2
Selected 3M Repo Rates vs. EONIA Eurepo Germany Frankreich Belgien Italien Länder & Jumbos ECB 10 5 0-5 -10-15 -20 29/03/10 31/03/10 02/04/10 04/04/10 06/04/10 08/04/10 10/04/10 12/04/10 14/04/10 16/04/10 18/04/10 20/04/10 22/04/10 24/04/10 26/04/10 28/04/10 30/04/10 02/05/10 04/05/10 06/05/10 08/05/10 10/05/10 Source: Commerzbank Treasury Secured Funding Desk 3
Selected 3M Repo Rates vs. EONIA Eurepo Germany Frankreich Belgien Italien Länder & Jumbos ECB 10 5 Fitch downgrades Greece CR 1. Greek bailout terms approved Strong increase in Greek s CDS S&P on Portugal, Greece & Spain EU/IMF package 0-5 -10-15 -20 29/03/10 31/03/10 02/04/10 04/04/10 06/04/10 08/04/10 10/04/10 12/04/10 14/04/10 16/04/10 18/04/10 20/04/10 22/04/10 24/04/10 26/04/10 28/04/10 30/04/10 02/05/10 04/05/10 06/05/10 08/05/10 10/05/10 Source: Commerzbank Treasury Secured Funding Desk 4
Turnover in Repo on selected ECNs 250,000 200,000 150,000 100,000 MTS BTEC EUR 50,000-01/03/2010 08/03/2010 15/03/2010 22/03/2010 29/03/2010 05/04/2010 12/04/2010 19/04/2010 26/04/2010 03/05/2010 10/05/2010 Volume in million Euro per trade day. Data provided by ICAP and MTS 5
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 6
Commerzbank s business model Andreas Biewald Treasury
Commerzbank s Treasury Set- Up Repos Support short term liquidity steering Providing collateral for central bank operations FX Swaps Active usage of the swap market to manage core currencies Liquidity Management Money Markets Managing the Liquidity Profile Providing access to unsecured Money Access to central banks 8
Pool Concept Treasury Principles 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 9
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) 10
Treasury Desk Central Banks ECB - FED - BoE Cash vs. Collateral F Cash Banks Corporate Retail R A CCP (LCH-Clearnet, Eurex, MTS and others) Cash + Collateral Commerzbank Treasury N C H I Cash + Collateral Banks Funds S E Triparty (CBL) Cash + Collateral Cash + Collateral Securities Lenders 11
Outlook: The future lies in a cross asset class approach Fixed Income Equity Listed Products Commodities Cash 12
Outlook for Central & Eastern Europe Andreas Biewald Treasury
Experience of the market participants Liquidity in the collateral market Re-use facility of collateral with central banks Key Factors of Success Legal Framework (GMRA) Electronic Trading Systems / active broker coverage 14
Experience of the market participants Market Participants Central Banks Investment opportunities Liquidity management The reasons to use repo are as diverse as the financial institutions in the market Banks Insurance Cos. Pension Funds Corporations Money Funds Yield enhancement Investment opportunities Financing positions Yield enhancement Hedge liabilities Investment opportunities Yield enhancement Investment opportunities Yield enhancement Investment opportunities Financing positions Yield enhancement Investment opportunities Central & Eastern Europe: Repo market in the early stages Correlation risk 15
Legal Framework (GMRA) Global master Repurchase Agreement Appendix for jurisdiction Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Slovakia Slovenia Central & Eastern Europe : Basic legal framework in place 16
Liquidity in the collateral market The collateral market (Governments) Pricing of collateral Regular issuance of Government bonds Issues in size Liquidity of the Government Bond market Active Market Making 17
Electronic Trading Systems / active broker coverage Electronic Trading Systems Cash Bond Market covered by MTS Liquidity in Repo Market on MTS limited (Hungary, Lithuanian, Poland, Slovenia) Market Making (Hungary, Lithuanian, Poland, Slovenia) Central & Eastern Europe : Basis for electronic trading in selected markets 18
Re-use facility with Major Central Banks Central Banks FED (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) BoE (Foreign Government Bonds in EUR, issued by Slovenia) 19
Andreas Biewald Head of Funding Tel.: +49 69 136-49695 Fax: +49 69 136-29851 Mail: andreas.biewald@commerzbank.com Geschäftsräume: Mainzer Landstr. 153 60327 Frankfurt/Main www.commerzbank.de Postanschrift: 60261 Frankfurt/Main Tel.: +49 69 136-20 Mail: info@commerzbank.com Andreas Biewald Treasury