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The Pandemic Stress Test: US Government Securities Clearance & Repo

The volatility of March 2020 represented the most serious test for US capital markets since the 2008 global financial crisis. Repo markets came under particular pressure as investors sought to bolster their cash liquidity while also seeking safety in US Treasuries.

In their capacity as a leading agent in triparty repo and US government securities clearance, BNY Mellon was at the center of these events, occupying a unique vantage point amid one of the most extraordinary periods in recent financial history.

In The Pandemic Stress Test, the bank shares data from their Clearance & Collateral Management business which provides new insight into how US repo markets performed through the volatility. Exploring the events through a number of lenses – including widening repo rate dispersion, demand dynamics for term vs overnight funding, mounting settlement failures and sharply increasing securities clearance volumes – a complete picture emerges of how repo and settlement market infrastructure coped.

The picture that emerges from the narrative is one of a market architecture that was thoroughly tested by repo rate dispersion, mounting settlement failures and sharply increasing securities clearance volumes, but an infrastructure that nonetheless demonstrated itself to be robust and resilient.

Read the Full Paper here. 

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