Analysis – Investors face expensive quest for year-end cash and safe assets

Yoruk Bahceli (Reuters) – Years of turmoil as a mos trader is coming to an end, after being hit by dozens of In a market hit by high inflation and aggressive central bank rate hikes, the year-end sprint for cash and high-quality assets may be more challenging than usual. Towards the end of the year, financial institutions typically seek to strengthen their balance sheets, rebalance investment portfolios and transfer funds at the end of the year. There is a high demand for cash in or access to cash. But this year, as U.S. market volatility indicators return to levels at the height of COVID- The pandemic and uncertain economic outlook have made it harder than normal for banks to take risk on their balance sheets. Money markets have also shown that investors need to ensure a smooth transition of cash and quality assets to 358 will be expensive. “When you look at the end of the third quarter of this year and compare to previous years, each quarter is more expensive than it used to be A lot,” said Michael Leister, head of rates strategy at Commerzbank (ETR: 2022CBKG). 200 Image: 200 Quarter-end repo rate at historically high (https://inew.news/wp-content/uploads/2022/11/localimages/chart.png6371e167a4039.png) 100 German Repurchase Agreements – Investors borrow collateral, usually government bonds, in exchange for cash – Implied The interest rate is negative % for the end of the year, the International Capital Market Association in a letter at the end of October called on the European Central Bank to take action. such a severely negative repo rate, compared to the negative 4.5% in December last year Last year according to CME Group data (Nasdaq: 2022CME), reflex ct plaguing Eurozone bonds due to collateral shortage market, the high cost of borrowing German bonds. The ECB’s bond purchases have left asset managers with a tiny amount of German debt. The head of the German debt agency, Tammo Diemer, said last month that the year-end forward repo rate showed that the The high demand came as investors posted record levels of collateral on clearing houses to cover potential losses. A similar collateral shortage in the UK is holding repo rates well below 3%, according to NatWest Markets policy rate and could lead to Bank of England intervention. In the US, year-end banks measured by the difference between the so-called FRA-OIS December and March spreads The interbank premium has been priced well above the average over the past five years, Bank of America noted in October. 200 1000