GFF Podcast
The Global Funding and Financing (GFF) podcast is Clearstream’s podcast series for the funding and financing industry, releasing monthly episodes with senior leaders in the space of secured finance covering all major topics shaping the world of collateral, securities lending, repo and OTC derivates leading up to the 2022 edition of the GFF Summit in Luxembourg. Stay connected with the GFF community across the globe and subscribe to our show. Each of the 30 minutes of lively episodes are hosted by Andrew Keith Walker, Finance and Tech Journalist and Christian Rossler, Senior VP, Securities Lending and Borrowing Products at Clearstream. Legal Information here - https://www.clearstream.com/clearstream-en/imprint-1277756
GFF Podcast
Year-End Special: Repo Markets, Excess Liquidity, ECB policy & Predictions for 2024
In this special year-end episode, we explore the changing EU money market ecosystem. We discuss quantitative tightening, new developments in Minimum Reserve Requirements, changes to sovereign deposit remuneration and excess liquidity. With expert insight from Christophe Rieger (Head of Commerzbank's Rates and Credit Research) and Martin Nazary (Head of Short Term Products at Deutsche Finanzagentur, a major source of liquidity in EU repo markets), both speakers at the upcoming GFF Summit in Luxembourg (31 January to 1 February 2024).
Together with hosts Christian Rossler and Andrew Keith Walker, we explore the significant economic impacts of these developments and look at year-end 2023, focusing on the rapidly expanding cleared repo market and the un-cleared triparty repo market.
Additionally, we round off 2023 with some money market predictions for 2024 and the upcoming changes in the ECB operational framework. Lastly, we wish all our listeners a good holiday season and, if you celebrate it, a Merry Christmas.
Welcome back to the GFF podcast. Yes, it's December. It's our final show of the year. Where has the year gone? It's flown by and we've had some amazing guests join us this year and we are very lucky today because we have two people who are going to be able to shine a light on the way the economic policy moves through central banks and sovereign wealth funds and out into the money markets. We're very excited about it Not as excited, of course, as we are to welcome back to the show my long-suffering co-host. It is, of course, the Vice President of Business Development at Collateral Liquidity and Lending Solutions. It is Mr Christian Rosler. Christian, welcome back. Good morning Andrew.
Speaker 2:Happy to be back.
Speaker 1:Christian, it's good to have you back and we are very excited, aren't we? Because we've often talked about the role of the ECB, about central banks, sovereign debt offices, finance agencies and the transmission of monetary policy and the vital role that they play. And this week we've got the Deutsche Finanzagentur and expert analysis from Commerce Bank. Tell us more about our guests.
Speaker 2:Yes, I think what today's show is about is really about the repo market, and I think I'm very pleased that we can today have in our show a representative of the German Finance Agency by the name of Martin Nazari and a representative from Commerce Bank by the name of Christoph Rieger, who's head of rates and credit research.
Speaker 1:Yes, indeed, christian, and this is an exciting time, isn't it, for repo. I've heard it called a repo renaissance. I've also heard that a week is a long time in repo because things can change very, very quickly and, speaking from the sort of Clearstream Deutsche Borsa point of view, I mean your ex had been reporting huge moves in volumes of repo. This, really, this episode has come at exactly the right time, hasn't it Christian?
Speaker 2:Well, yeah, we are moving out, since more than a year now, of a period which was a period of ultra monetary, ultra easy monetary policy, which is also known as the QE, and since now more than a year and a half, the ECB has started to raise interest rates. So there were exactly 10 rate hikes between July 2022 and October 23. So it is actually an interesting time to look at what the repo market is going to look like by the end of the year 2023 and also to have a look into 2024.
Speaker 1:That's right. Yes, will Father Christmas be bringing all the market participants a nice balance sheet ratio this year, or will there be collateral scarcity and not much under the tree? To answer these complicated and I do apologize for the Christmas theme references, but it is December. To answer these complex questions, we're going to turn to Martin and Christoph, and I want to start with Martin. First, martin, you are the trader responsible for short-term products, the Deutsche Finanzargenteur, the German Finance Office, so this is exactly in your field and I want you to set that big picture for us 2023. How has it been? Because this time last year there was a real slowdown in collateral movements. Large market participants like pension funds, were finalizing their balance sheet early, there was a lot of commentary on collateral scarcity and then this year we've seen an unprecedented period of inflation, interest rate rises, volatility, big rise in cleared repo, reported almost every month by our friends at Urex. How has the market changed? What's it been like operating in such a rapidly evolving economic environment?
Speaker 3:Yes, thanks a lot, Andrew, for your question. Let me look back first to the end of 2022, as we had the turn and the year end and the levels pretty much stretched. So the start of the year was definitely with a lot of uncertainty, as the volatility in 2022, as mentioned, was very high. At least the year end calm down to the end to levels of S-300 to 400. And in January, with regards to the specials, we were as expected and, just to mention, in 2022, we had the year end at one stage priced in at S-1000.
Speaker 3:So it calmed down already After January started, as expected, but nevertheless there was a high uncertainty and we spoke about it at Summit in Luxembourg and that was looming in the dark, which was the remuneration of the government deposits at the ECB. But finally, with a decision of S-20 for the deposits, the repo market promised to work orderly, and this was also the case. I mean the big question that was left in March and April how much of those deposits will be reduced till May Remember I think the number was around 400 billion just for the European ones and what amount will find the way to the repo market. So, finally, around 100 to 150 billion of domestic ECB cash holdings were reduced till May and currently we are around 200 billion holdings, which is almost half of that.
Speaker 3:The repo market was functioning very well and, looking at Ben Bullchisee, at specials, the levels were not getting more expensive but probably due to the decent supply and less ECB program buying, even a bit cheaper. This means that we saw GC this year around S-1000 to S-1000, plus three, four and specials in the range of S-10 to S-20, which was compared to last year, much better levels.
Speaker 2:Well, in some other books.
Speaker 3:They decided to set the remuneration for government deposits in Germany to zero on October, a decision that was probably not expected by many participants. Nevertheless, the market continued to refine a level state where there were, or got even a little bit cheaper. So for 2024, it would be interesting to see if other national central banks will follow the Bundesbank and you remunerate to zero as well as, or if something will be changed to, the non-government deposit remuneration. I think for year 2023, the indications for the pure term are currently at S-100 to S-150 for bonds. Looking back to last year, we had indications at this time of the year of S-800. So it's much better, so hopefully this stays where it is.
Speaker 3:There's always some uncertainties, but Petitji doesn't seem to be a big thing this year from what we hear from banks, and also the FX doesn't really show any distortions so far. So one thing to say to the transition regarding rate highs and the repo levels. This worked quite well this year, so at every rate, I can very easy transition to the race. Nowadays we feel a bit that there might be more volatility towards month-end after the minimum reserve requirements. Remuneration was set to zero. It seems that this leads to some defensive pricing in money markets and therefore collateral demand over month-end could increase, but it's. I mean, it's too early to find the final conclusion, but we need to to see how the coming month-ends will develop.
Speaker 1:Obviously the stock. Now, chris, this is the perfect time to bring you in as the head of rate and credit research at Commerce Bank. It's an interesting time. You have written extensively on these topics as well, with sort of neutral third-party observer status. I want to come back to that point that the Martin raised. You wrote a paper about the ECB's decision to cut the remuneration on bank reserves to zero. For government and and for sovereign institutions it's ester minus 20. What was the impact of this on market participants? And you know how did the ECB reason this out from your point of view?
Speaker 4:Yes, I think we really need to distinguish between these two measures because they are often thrown into one pot, but they work rather differently. We're, on the one hand, we have this Remuneration on government deposits that also Martin mentioned. Now, basically, there's a cap. The ECB allows national central banks to pay, which is ester minus 20, but all national central banks have discretion to deviate from that. Ie pay lower rate, and we learned, but surprisingly to some, the summer that the Bundesbank actually went to zero, right. And so this of course, has huge implications, as you can imagine, for, yeah, managing sovereign cash balances. So for Martin, if you like, and yeah, it's very Diverse in a sense, that's clearly any national central bank has a lot of discretion in terms of how much they want to pay. And then there's the other big story. Now has also she hit the market with a bit of surprise, and that concerns the minimum reserve requirements. So basically both concern Liabilities on the ECB balance sheet. But the second point is the money that banks deposit with their central bank, with the Bundesbank, with the, basically the euro system, and how much they get for this. And and here, yeah, the remuneration on the required reserves was also cut to zero in a surprise move Back in July.
Speaker 4:And now you're asking about the, the consequences of these two measures. I mean the first measure, the government deposits. I mean, as Martin was pointing out, I mean that the when, when governments get less, so only ester minus 20 or if they get nothing Zero from the Bundesbank, of course they move cash elsewhere, and if they would have done this one year ago it would have been a catastrophe. And actually we were close to that catastrophe because, by default, initially the rules were that, basically, the ECP pays zero, all national center banks pay zero. That's how it has always been. But then when rays all of a sudden moved to positive territory, this would have really caused a catastrophe with, yeah, over 400 billion of Basically cash having to look for positive yielding short-term assets which, yeah, I just Didn't exist to that extent. So then in the end, it was important for the central bank to Still continue paying interest on that amount. But since then, with the Bundesbank even to moving to zero, of course, this money has gone elsewhere, but interestingly, the repo market is still Very relaxed. Yeah, so it's, it's extremely calm. Collateral is cheap for a number of other reasons, by the way, that I'm sure we will discuss here, but at the end of the day it underlines that also, martin and his colleagues have done a good job managing this transition, basically managing their reserves or they are, their holdings at the Bundesbank, without any any larger market dislocations, and I think this is a very clear sign that I think that the repo market really has changed profoundly since, since last year.
Speaker 4:Now, final point, just briefly on them, on the reserve requirements, or basically what banks have to hold with the, with the central banks.
Speaker 4:Yes, here we are observing some Distortions, especially around the month ends where basically it counts, and right now I would say they are still very muted.
Speaker 4:These distortions, I mean a fair value for a Unsecured wholesale deposit at a European bank Over this relevant month and turn, if it's a one-day month and Would be around a hundred and sixty basis points lower than the day before.
Speaker 4:Right now we've seen a small dip over these month and the magnitude of two, three basis points. So it's still a fraction of what it would be if banks would really pass on the fair value of basically having to hold Higher reserves at zero percent Then for six weeks. That's how long a reserve period lasts. So at the end of the day I would say, yeah, markets are still relatively calm. Also, there's a way to shift from unsecured into secured deposits which don't fall under the minimum reserve requirements, and so this is why I think the eCb needs to tread very, very carefully in terms of Changing these parameters, because there will always be Knock-on effects into some of these market segments that we are discussing here today well, I'd like to talk about that in a bit more detail with Martin, because we obviously we don't, as a general rule, get central bankers appearing on finance podcasts or writing in the press and that sort of Traditional sort of journalistic output so much.
Speaker 1:And you are the closest thing we've had to To someone from a central bank here. I know the Deutsche finanzungen toy is not the central bank, but you are, without any question, as close as it gets. So I want to try and get your insight into that sort of domestic Role versus the, the European role, because we often talk about the EU 27 and the eurozone 20 as though it's one entity. But but of course they all have central banks and they have different economic priorities. And and I want to know how the Bundesbank's decision to remunerate domestic Republic zero Affected your sort of strategy and outlook for the year. How did the, the German strategy, evolve in light of your own domestic changes?
Speaker 3:Yeah, thank you. I mean, we were expecting, expecting this move, so we were not really surprised. Timing wise, probably yes at the end of the day. But we were expecting and and this year we have taken early measures to reduce our cash on the inside of the Bundesbank, especially by using reverse reports. So, and the thing is, we started already early enough, not not, not in, not in summer, where the level was set down to zero, but we started already in May and we were not only able to buy German government collateral, but we also Expand to core Gabis in Europe as well, to the u-pay pass super us agencies and, of course, gc pooling, classic basket, and we started to trade specialist in packages versus GC, versus GC. So therefore, the For us, the finance agency, the change from, as summer is 20 to 0 was made, not making a huge difference. And one important thing is we still continue to provide liquidity and specialist in the market. I think there was always a question over it. There's always a lot more questions to us. Has this changed on anything to your approach? No, it hasn't. So we still continue to probably be in specialist.
Speaker 3:We are also in the process of set up bilateral agreements and we look to get into Tripati to expand our reverse mean for possibilities, but it boiling laugh. I said before we started to get our balance. The bundlespan holdings down to zero already in May. I think many others start to manage that cash differently and with the positive yield environments the volumes like GCC will it become significantly, and this is what you can see here. It will be definitely interesting to see what happens next year when other, let's say central banks follow the route and start to remit rate to zero as well. It will be interesting to see or I don't know, this is something for Christoph probably if the non-ECB deposits would be subject to the zero policy as well.
Speaker 1:Well, on that front, christoph, I mean, obviously Martin can't comment on other European countries and what they're doing, but you can because you have this sort of helicopter view. So I'm interested what about the rest of Europe? How different are central banks going to be over the coming year? You tend to get the impression in the press that everyone sort of follows the Bundesbank as being a supremely sort of influential force in the transmission of macroeconomic policy out into money markets within the EU. But there are variations. Tell us more about the rest of Europe.
Speaker 4:Yes, you're right, we should forget there are also big national central banks that can make a difference and right now it's just a very unharmonized approach. I have to say would welcome if the ECB, rather, would set the standards and not just the cap, but that all national central banks basically would follow a similar approach. I would believe, I actually believe that we are heading in that direction and at some point the ECB should move also their guidance to 0%, back to 0% from Esther minus 20. So far, different countries have made different progress, as we heard. I mean, of course, finance is at zero Balances with the Bundesbank. Spain still has very significant balances, a few other countries have as well. I think over time they should be in a position to manage their balances, their cash balances, down, just like the finance agitator has done, to then also cope with a much lower rate and potentially also again with zero, which used to be the standard actually, since the euro was created until last summer.
Speaker 1:Okay, so we're going to see this sort of shift over Europe and do you expect and I want to ask you both this question do you expect to see a change in the kinds of repo activity that go on? Because it's difficult sometimes to get a feel for the sort of split between GC, bilateral triparty specials, how assets get allocated, then repoed out, and obviously we're going to talk later about those repos some of the Fed style moves that might be coming.
Speaker 3:And just to get an idea of the breakdown of what is a geochallenged loss.
Speaker 3:So you do your reverse, reverse repos in a way that you end up with zero cash needs, or not being long, not being short, nothing, anything like that. And I mean this is actually what we do at the finance agitator as well. Right, we support the market by providing liquidity in the specific funds, especially in those that are still held by the program, where we still see some value, and on the other hand, we try not to leave any cash at the bonus bank. So therefore, we try to do either spreads or we do repo on one hand side and reverse on the other side, as this is working quite well. I mean, obviously for DMO-wise. I'm not sure how other DMOs are acting in the market in the way like providing specialist. This is something that Germany is more active in because the highest value in specialist you see here. But this matchbox sort of trading is something we definitely will be looking to do in the forward, as the flat cash policy is there and we have to apply it.
Speaker 1:Now at this point I want to come to you, christian, because you are an expert on central banks. You've got lots of relationships with central banks around the world over a long time. You're also client facing and interface with other teams, sort of Clearstream and other members of the Deutsche Bursa. So this is a hugely complex area to operate within, I would imagine, if you're providing services and developing products and there are various things in this where you have to kind of hit a moving target in terms of developing tri-party or focusing on new features for GC or client matching with digital products and that sort of thing, and within that again there's also the difficult area of haircuts on specials and sort of harmonising prices and there can be wild disparities in that. So what sort of services do you need to develop and keep developing moving forwards for the changing market and how do you help sort of your client market participants optimize their cash balances and engage in repo in the most effective way, as things are moving so quickly?
Speaker 2:Oh, that's a multi-layered question, andrew, but I'm trying to. First of all, I would like to echo some of what has been said and then maybe that leads me to answering also the question. I think talking about repo markets and special versus GC, I think and scarcity, I think one observes that those bonds that are special are actually those bonds that are scarce. So I think I attended to also echo a little bit what the central banks doing currently. I attended the ECB monetary policy 2023, a couple of weeks ago in Frankfurt, in the headquarter of the ECB, and one of the outcomes of that conference was also looking to the repo markets and how they reacted since the ECB has started to raise interest rates. So it seems that those bonds that are obviously special they create a profit opportunity for those investors that hold those special bonds because they can lend those bonds in the repo market and then they can park the cash at a higher rate, and this rate is often, for the time being, also at the ECB or the National Central Bank. So that means market participants that own those special bonds use it to borrow cash, buy actually less than what the main monetary policy rate was actually changed because that was raised and so they could make a profit.
Speaker 2:Now to come back to our role obviously we offer platforms for a triparty repo programs, but also, together with our, we are part of the Deutsche Börse group.
Speaker 2:So, as Kwiastream is acting as triparty collateral agent, we partner with the UX clearinghouse in the middle and we also have UX repo with the entity that's offering the training platform.
Speaker 2:So we are known in the market for having built a very resilient product, which is the GC pooling product. It's an electronically traded triparty repo which works with a disintermediation of the counterparty risk. So the central counterparty, ux clearing AG, is actually becoming the sole counterparty to the parties that trade, and I think Martin knows these products. By the way, martin also trades on the special repos over UX clearing. So, yes, I think we are constantly trying to obviously be with our platforms in the market in order to allow these massive outflows of cash that, as it was described also by Christoph, when the market has to absorb huge amounts of cash volumes, it's definitely a good thing to have a platform where you can electronically trade, where you have a central counterparty and where the collateral is actually managed by a triparty collateral agent. So we act as a market infrastructure provider and, I think, making the repo market or helping contributing to a more resilient repo market.
Speaker 1:Okay, and in terms of the market participants in the repo market, christoph, I want to talk to you here because we have got reports, obviously, that there's a lot more hedge fund activity in repo now than there was previously. And I'm interested here because when you talk to people who have been commentating on the space for a long time people like Richard Camato or Danny Corrigan they will often say that at the beginning, repo was very little understood, it remained a bit of a niche, it was something that was quite specialist. And then there's been this big shift, hasn't there in recent times, where it's become a much more mainstream sort of tool for different financing objectives and there's been a big growth in hedge funds. Tell us about that, because you actually have been analyzing these markets.
Speaker 4:Yes, certainly since last year, I think. All of a sudden, I got calls from people who never even knew a repo market existed. But what is happening in repos? And I think the reason is very simple, because what is happening there is at the heart of a lot of other valuations. Even if you're not trading repo right, even if you're just a I know one portfolio manager in any segment Repos have a direct link into swap spreads and swap spreads in turn affect a lot of your performance matrices. So that's why I mean, with the other huge swing in the repo market last year, more of a sudden the interest was Was gigantic.
Speaker 4:At the same time, I have to say, transparency is still rather low. If you compare it to, I mean, the other side of the bond market, the cash market, your full transparency, right, you do all Q and Bloomberg and you see exactly who's offering which bond at what level, etc. In the repo market. Yes, of course, the repo market, the repo traders, they they also know very well where a bond should be trading, but everyone else does not. So I think there's a yeah, still a A gap to be filled and we did fill this with yeah, more detailed analysis that we dug into that we're publishing to basically shed light on on what is happening, not just to make people able to observe Basically these swings in the repo mark belts, to understand basically what is driving it.
Speaker 4:And here I mean clearly, that's beyond the scope of just answering this question. I mean there are many, many different drivers, and you mentioned hedge funds, you mentioned positioning. I think that is very key in terms of explaining, to a large extent, what has been happening since last year, but also then we have all the big players in the market, or the big holders of bonds, like the Bundesbank, like the finance agent tour, and, and how basically they react, and all of this then, I think, has led Tightening of conditions that we've had last year extreme.
Speaker 4:The opposite.
Speaker 3:Opportunities in the US or in JGPs, they move away. But I think there were a lot of new Investors coming in and we saw that funny enough, especially at the in the March delivery where suddenly Everyone was looking for the paper which was not held In the two-year sector, which was not held by the program anymore but by various other participants. So the report, as you change their approach a little bit in and like looking where the bonds are, and I think this this should describe it a little bit stuff.
Speaker 1:I mean, what about non-financial camps parties? I want to come to you and talk about the potential changes coming at the ECB which are going to be majorly disruptive. And so, as let's, let's look at that a little bit, because we're talking about reverse style repos, repo opening up to non-financial counter parties, there being a sort of a broadening out of the eligible market participants there, and we're on the cusp of some major changes coming from the ECB anyway, because you've written a paper about this Back in April, about their changing operational structures. So so tell us how is the repo market Going to change and who are these new participants that are going to be entering it?
Speaker 4:Well, the non-financial counter parties you mentioned With regards to getting access to euro system Operations is an ongoing theme that has been there for years and certainly Gullet some momentum last year. It will, I believe, also be picked up with the review of the ECB operational framework next year. I Don't have the feeling that there is any urge right now actually To change the system in a way to admit non-financial counter parts. So so, given the the experience earlier this year in March, when basically US regional banks Got on a severe liquidity stress, we observed that the American system, where actually non-financial counterparts do have access to Fed reverse repos and also be somewhat of a boomerang because that allows actually deposits to leave the banking system as a whole and therefore, yeah, could Exaculate the deposit flights that we may see under stress conditions.
Speaker 4:So that and a number of other reasons I think Point to not the ECB in the rush right now to change anything there. But, having said that, a lot of things will change because I mean, make no mistake, the review of the ECB operational framework Will change the way the ECB will Operate, will conduct monetary policy for decades to come. Yeah, and this has to do, of course, first and foremost with steering short-term interest rates, but it goes far beyond that, and so there are a number of moving parts right now, and therefore think it's important to keep a very close eye on that, because that clearly has implications for all market segments that we are dealing in, and and Christian, to throw another multi-layered question your way.
Speaker 1:We've got all these currents that are changing and a couple of months ago we met up with Genre bear and Michael Michael Karaniano from the Meg to talk about ECMS and the impact that will have. Now we know it's been delayed, it's not gonna be coming in a big bang until later in 2024, but how is ECMS Going to affect the, the changes we experience next year? Do you think?
Speaker 2:well, ecms is basically Deplumbing that the ECB is putting in place on the collateral management landscape, so they harmonize the access to allocate collateral To the ECB through, actually, the national central banks. You know that central banks in the eurozone Are all, to some extent, operating independently when it comes to the operations or the technical support, but that the ECB is the the landlord last resort in the eurozone. So they they don't actually decide on on the terror policy, but they execute what ECB is Deciding. Now ECMS is simply the European collateral management system and, from our perspective, clear stream will Plug into ECMS through our tri-particle at a management platform and there is obviously on the assets that are actually allowed to be Allocated to the European central bank via ECMS system.
Speaker 2:There's obviously some, which is Credit claims, and we today don't actually allocate credit claims in tri-party. So for us in tri-party we allocate bonds and Credit claims are something that we don't allocate currently. It's also something that is At the level of each national central bank decided. So I think implications are Less monetary policy related. It's much more how quickly can you access central bank money?
Speaker 1:And so ECMS is there to, yes, streamline that access and do you think there'll be a shift and Demand away from the sort of high quality stables like boons, swedish government bonds, us treasuries, jgb's, towards more complicated or varied baskets of collateral collateral types and and also perhaps things that are built around credit claims?
Speaker 2:What we observe, I Mean, is obviously that the repo markets that we actually serve with our, with our platforms, we can see that there's still Room for high quality liquid assets.
Speaker 4:I think today there's still More than a third of euro area sovereign bonds which are held by the euro systems, so by the national central banks, and I think that so, from that perspective, we don't see a Change in the very new future on that front the data clearly shows that I mean things are, of course, keen to use lowest Quality collateral as far as possible in these operations and for credit claims are very important and, as Christian is pointing out, there's no standardized System, so each NCB is still responsible for its own balance sheet and therefore the rules or the credit limits are are different here and Going forward I mean at least judging also from what philly Blaine said at the ECB conference a couple of weeks ago ECB is keen to make sure that there's no scarcity of safe assets and that also the operations therefore Allow banks to transfer, yeah, different assets of different quality into High-quality collateral or into a basic bank reserves, which is, of course, the best liquid collateral that you can have.
Speaker 4:And Therefore, under this new operational framework that is now being designed, I have the feeling at least a number of people in the ECB are pushing that the acceptance will remain rather broad and this in turn means that when center banks are sorry, when banks repay their, they are tell troughs. Right now, for instance, I mean, the collateral they take out first is the highest quality, low-sealing collateral and rather they leave, yeah, the other stuff with central bank.
Speaker 1:Sadly, we have to start drawing our threads together, for this, the last show of the year, and of course, it is Christmas time and that means we do need to Make a few predictions about what we think is going to come in 2024. We love our crystal ball. Questions On this show don't be questioned, so I'm gonna float this one out. Martin, I'm gonna come to you first your predictions for 2024. You are, of course, the the, you know, the man with the buns, so to speak, a key source of Buns and played important role in the equity in German markets as well as the rest of the EU. What do you see Coming in 2024? And, in particular, everyone's talked about the maturity and the coming to the end, the final.
Speaker 3:Maybe new TLTRO products coming. Do you think they're gonna make a big impact in 2024? Look into the crystal ball. There will be. There will be decent size. That will remain there, because I think going back to To almost zero on X dignity will not work. Going forward probably.
Speaker 3:I think, christopher, you just wrote something about it, so I'm sure you can take something up there as well. And Regarding the specialist, I think there still will be demand, probably on a other similar level as this year or the second half of this year, because there's still a lot of funds that are held by the program and this would take time to run off and therefore I think we will still be there and, provided liquidity if needed, the spread business and the re-resting will work out fine. This is what I think we might see some bit more volatility, as I mentioned before, towards one end due to the minimum reserve requirements where the banks would need to manage the cash, but I'm pretty optimistic going into 2024. I mean, uncertainties are always there. We never know politically, but I think if the markets develop I stated this year, I think we all know that- Good, great, okay, that sounds like a good one.
Speaker 1:Father Christmas is coming. That's good news, christoph. What about yourself? Predictions for 2024. Now, I know that you have made some pretty accurate predictions in the past, and you've made a few what seemed to be very accurate sounding predictions about the ECB's operations and then your operating structure next year. And you are, of course, an expert on TLTROs and the impact of them coming to maturity and the new kinds coming out. So give us your prediction as well. What do you think 2024 holds?
Speaker 4:I would be very surprised if we see a new set of teltrose being launched next year. I think the old ones will get repaid, that's for sure. Overall, I do see the ECB and its policy approach maintaining a rather generous approach regarding a number of its balance sheet measures, so not ending, for instance, pep reinvestments early, and also when it comes to the design of its new operational framework, I think the discussions are going more in the direction of a more generous in terms of liquidity providing framework. But at the same time, when it just comes to pure rates, I don't see them cutting rates nearly as quickly as some in the market are now expecting. I mean what the market is pricing for the end of next year?
Speaker 4:Still some 80 basis points. I mean we were as much as 100 basis points of cuts a few weeks ago. I think it's way too much. I think they're just 25 at the end of next year. This inflation will still remain the bigger problem for quite some time to come. I mean, then, regarding some of the parameters that we discussed here, specifically to the repo markets, on the minimum reserve requirements, yes, I see them raising that requirement potentially to 2% Next year, from 1% right now, but not higher. And on the government deposit remuneration, I can see them cutting it across the board to level where the Bundesbank is IE 0%, if not by the end of the next year, then certainly over the next couple of years.
Speaker 1:Okay, good. Well, that's an interesting one, because, whereas Martin is definitely predicting the Chriskint, or predicting a little bit of Schwanze-Pater there coming for markets, we will see. That's a little German Christmas joke. For those listeners who didn't get it, do go and check it out. We are still attached to Europe, even if, after Brexit, we're not allowed to speak foreign languages live on air, otherwise we'll get arrested. And finally, christian, I'm going to ask you the easiest predictions question I have ever asked you, because I'm going to say what do you predict is going to be the big topics conversation next year's Central Bank and sovereign wealth fund forum? That's taking place, obviously before the GFF in Luxembourg.
Speaker 2:Well, andrew, I think it's brought on with what I mean Christof and also Marty have said. I think the ECB during a decade did quantitative easing and I think it has risen. It did actually reduce the functioning of the repo markets. Now we are out of that QE, we are in QT and so interest rates going up. And I think, when it comes to what Christof mentioned, when the ECB is going to review its policy transmission operations in the spring of 2024, I believe that when I listened to the experts that were at the ECB monetary policy conference in 2023, there were voices saying that definitely the well, tltros, the targeted longer term financing operations, are there to stay and also full allotment is going to stay. But some voices said that asset purchase programs were not there to stay. So these are the topics that we are going to debate at the Central Bank and sovereign wealth fund forum.
Speaker 1:Great, okay. Well, that's it. I'm afraid we have come to the end of our time here together. There is time for one last Christmas related question, which is, of course, what are your Christmas plans? This year it is traditionally the holiday season, even if Christmas isn't your tradition, hopefully you will be getting a break.
Speaker 3:I have to say I have to work as well, because it's not the days what your Christmas plans are going to be. So, martin, for you, what are you?
Speaker 1:planning to do this Christmas.
Speaker 3:In the repo markets. It's not, I would say, calm time. It's always very busy, so I will be here and trying to see how we are done.
Speaker 1:Hopefully you'll manage to pop open a bottle of eggnog at some point during that. Christof, what about yourself? I think it's going to be crazy at Commerce Bank, or are you going to get a break this year?
Speaker 4:Yes, there's still a bit of traveling with outlooks before your end, but then I'm glad at this time of the year that I haven't become a repo trader or a short-end trader in the finance agon tour, who will, I know, always have to work quite extensively during the final days of the year. So I'm looking for taking some time off and getting a break.
Speaker 1:Then all that really remains is for Christian and I to say a huge thank you to our very special guests this episode, and that is Martin Nazari from the Deutsche Finanzagentour, that's the German Finance Office. Martin, thank you very much. Thank you, and also a huge thank you to the head of rate and credit research at Commerce Bank, christof Riga. Christof, thank you.
Speaker 4:Yeah, thank you very much, Andrew, for holding.
Speaker 1:Okay, Christian, that's it for another year, and I meant to ask you what are you going to be doing this?
Speaker 2:Christmas. Well, that's a very special Christmas for me this year because I'm going to get surgery on the 21st, as you know. So you can stop your joke with me breaking carbon fiber bikes and having broken legs. So they finally take out the metal I have in my finger and then I can turn the page. So I'm looking forward to that.
Speaker 1:That's great. I can't imagine how far the Christmas is going to get that brand new carbon fiber bicycle down your chimney this year, especially as you live in the penthouse of a block of flats. That's going to be quite hard for him. But anyway, however your present arrives, I hope you have a good break. And yes, from me and everyone here at the GFF podcast and at Clearstream and the Deutsche Börse Group, we want to wish everyone who is listening, and early but a well-deserved, happy holiday season and, if you celebrate Christmas, a very happy Christmas to you.
Speaker 1:Or, and if you're making New Year's resolutions, I suggest you make a New Year's resolution to join us at the GFF Summit and at the Central Bank and Sovereign Wealth Fund Forum in Luxembourg on January the 31st and through till February, and not all of February, obviously, just February the 2nd and make sure that you come so you can meet Martin and Christoph in the flesh and hear more from them and predictions for the year ahead. And also, if you want to connect with Martin or with Christoph or with Christian or with myself and anyone else who's been on the show so far, make sure you join us on our LinkedIn page as LinkedIncom slash companies, slash Clearstream, where you can find out all about the GFF Summit, the Central Bank and Sovereign Wealth Fund Forum, our guests, the podcasts and, of course, what I'll be doing for Christmas. And, as I'd like to say to you as my number one Luxembourgish friend, a shine Christig and to everyone else a frolic of vineax and a joy of Noel. Felice Navidad and a Merry Christmas from everyone here at the GFF podcast. We'll see you in January.
Speaker 1:Bye, bye, bye, bye and don't forget. This show is brought to you by Clearstream Banking, one of the major sponsors of the GFF Summit each year in Luxembourg, and features members of the Clearstream team and special guests expressing their personal opinions, not the opinions of Clearstream as an organisation. And, of course, don't forget that none of the information in this podcast should be taken as legal, tax or other professional advice. See you next time.