STIR: MNI Market Analysis: UK Funding: Gilt Demand Impacts (1/2)
Nov-13 09:52
- We have focused a lot on the supply-side impacting UK funding markets and we draw together some of our recent coverage on that topic in this document. However, we also look at the demand side of the equation and an increase in long gilt positioning may also have been a contributing factor to the most recent increase in funding costs and RONIA.
- We think that some of the moves higher in repo funding costs will potentially have been due to the market buying gilts (particularly to establish new long positions). Hedge funds in particular use repo to held fund long gilt positions.
- Therefore as long gilt positions are established if these are funded using repo, demand for repo increases. Higher demand for repo will increase the interest rates applicable.
RONIA Spikes and Event Drivers
Ovals denote: Red: Quarter-end. Yellow: Bank Rate cut. Green: APF gilt redemption. Blue: TFSME repayment
Source: MNI, Bloomberg Finance LLP
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BOE: ILTR Usage Sees Another Notable Pickup
Oct-14 09:51
- The ILTR take up this week was GBP6.344bln - surpassing the GBP5.085bln seen two weeks ago - and the highest level since the week of the first Covid lockdown. This is also the largest net weekly increase in ILTR usage in that time - increasing by GBP5.004bln. All bids were accepted by the BOE with no increase in clearing spreads above the minimum levels.
- Assuming unchanged STR usage on Thursday (which cannot be assured after 3 of the last 4 weeks saw drops in usage), this would put repo balances at a new record high for the week of GBP124.4bln.
- We think that ahead of the change to the ILTR spread for Level A collateral changing from Bank Rate +0bp to Bank Rate +3bp in November (date still TBC) that 6-month repo rates are getting locked in now.
ITALY: Government Wants To Raise E5bln From Banks Next Year: BBG
Oct-14 09:47
Bloomberg reports that Italy "is targeting around €5 billion ($5.8 billion) from lenders for its upcoming budget law and is pushing to reach an agreement with banks on the issue, according to people familiar with the matter". Bank taxes have historically been a difficult issue for Meloni to navigate. However, the latest sources story comes after the Italian bank lobby (Abi) unanimously approved to continue contributing to the budget earlier today.
From the Bloomberg story:
- "Italian officials are discussing a range of measures which would allow Rome to cash in a contribution from the sector while not overly affecting lenders’ balance sheets, said the people, asking not to be identified as no final decision has been taken."
- "Calculations on how much Italy would be able to generate are still in progress and range from about €2.8 billion — reported by Ansa late Monday — to over €5 billion, the government’s target."
- "Among the options under review is the possibility to tax funds that banks set aside to avoid paying a levy imposed by the government in 2023, the people said."
- "Another option would be to extend the freezing of so-called deferred tax assets, already approved for 2026, to the following year."
GILT SYNDICATION: 5.25% Jan-41 gilt: Final terms
Oct-14 09:45
- Spread set earlier at 4.375% Jan-40 Gilt + 8.0bps (Guidance was +8/8.5bps)
- Size: GBP9bln (above the GBP4.0-8.5bln MNI expected - although we had noted the top half of that range was likely).
- Orderbooks closed in excess of GBP125bln (including JLM interest of GBP7bln)
- Maturity: 31 Jan 2041
- Settlement: 15 Oct 2025 (T+1)
- Coupon: 5.25% (short first)
- ISIN: GB00BVP99897
- JLMs: BofA / Barclays / DB / MS (B&D/DM) / RBC CM
- Timing: Allocations to follow
Source: Market source and MNI colour
