SOGEI website background

The European repo market and the COVID-19 crisis

The European repo market and the COVID-19 crisis

As the crisis accelerated, and as countries went into lockdown, in the first two weeks of March, repo market activity increased, driven partly by flows out of risk assets into the safety of short-term secured markets as well as collateral transformation to meet margin requirements or to cover fund outflows (see Figures 1 and 3). The flight to quality was most felt in German general collateral (GC), which richened in the third week of March by as much as 20bp to precrisis levels (see Figures 1 and 2), while Italian GC saw some minor cheapening, of between 5-8bp (see Figures 1 and 4), which seems to be partly off the back of hedge funds unwinding leveraged long BTP exposures.