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The @ecb published today the "Euro money market study 2020", a #Eurosystem analysis on money markets based on #MMSR granular dataset. This is the most detailed publication on the #euro money markets, this time covering the #COVID period. Thread 1/n
https://www.ecb.europa.eu/pub/euromoneymarket/pdf/ecb.euromoneymarket202104_study.en.pdf
The study covers 2019-2020 for five segments of the euro money markets: (i) secured transactions – repos and reverse repos; (ii) unsecured transactions; (iii) the issuance of short-term securities (STS); (iv) foreign exchange (FX) swaps and (v) overnight index swaps (OIS)
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It shows during the #COVID-19 period the contrast between the resilience of the #secured segment and the distortions observed in the #FX swap, STS and #unsecured term segments. I'll focus on the unsecured segment for a short overview but there is much much more in the study!
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In the unsecured segment, borrowing transactions dominate activity by euro area banks, with banks channelling the excess liquidity to the Eurosystem as excess reserves or by using the deposit facility.
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Still on #unsecured volumes, data show that liquidity injection is correlated with reduced interbank lending activity (an increase in excess liquidity coincided, on average, with a decrease in unsecured lending volumes, while it is not the case for wholesale borrowing
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The €STR has been stable since its launch in October 2019 but with still some fluctuations in rates and volumes related to i. the two-tier system ii. the COVID-19 outbreak and related MMFs cash hoarding and iii. improved risk sentiment afterwards
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The rise in EURIBOR pointed however to tensions in other segments of the money market before normalization in part due to central bank policies
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To come back to short term unsecured rates, liquidity injections during the COVID-19 crisis have coincided with downward pressure on short-term unsecured rates
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On liquidity distribution, over time, excess liquidity tended to accumulate in specific banks located in a
few euro area countries, independently of how the liquidity had originally been provided by the Eurosystem
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few euro area countries, independently of how the liquidity had originally been provided by the Eurosystem
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Regarding short term securities (STS), which represent an important innovation of this 2020 study, STS issued by euro area banks represented €176 billion at the end of 2020. This makes the STS segment an important source of funding for banks.
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This is only a very small overview of some of the charts and findings... you'll find much more in the full study available here:
https://www.ecb.europa.eu/pub/euromoneymarket/pdf/ecb.euromoneymarket202104_study.en.pdf
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https://www.ecb.europa.eu/pub/euromoneymarket/pdf/ecb.euromoneymarket202104_study.en.pdf
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