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Securities Lending Market Report | H1 2025

Fixed Income

>>> European Fixed Income

Fig 1 - S&P Global
European Government Bond Market

1.36 430.00
Lendable Value (Trillions €) 1.32 410.00 On-Loan Value (Billions €)
420.00
1.34
400.00
1.30
390.00
1.28
380.00
1.26
360.00
1.24
Jan 2025 Feb 2025 Mar 2025 Apr 2025 May 2025 Jun 2025 370.00
Group Lendable On-Loan Balance

In Europe, the European Central Bank (ECB) continued the rate cutting cycle which began in June 2024, with 100bp of
cuts in H1 2025, lowering the deposit rate to 2%. European central banks have spent much of 2025 grappling with the
dilemma of lowering rates to counter slower economic growth versus exogenous factors such as the U.S. “Liberation Day”
tariffs and an escalation of the Israel-Iran conflict. Ultimately neither of these events were as bad as initially feared which
fueled a market rally although the USD remained on a downward trend.

The declining European rate environment has resulted in compressed significantly, reaching as low as 1bp in short Introducing the
the majority of EGBs (European Government Bonds) trading dates, down from a high of 4bps at the beginning of the
at or close to General Collateral (GC) with only a handful year. This overall compression also extended to specials,
of specials, generally those bonds and bills approaching with spreads narrowing from around 15bps to approximately
maturity, with richening particularly observed around month 10bps, and the number of specials declining. This has been ISLA Securities Lending
and quarter-end. As a result of falling rates, on-loan balances driven by a reduction in demand to borrow specials as RV
have fallen from the 2024 year-end highs from c.€420 to opportunities in the German market have declined and the
c.€380bn Euros. Peripheral GC has traded 2-3bp above short basis trade has disappeared. & Borrowing Hub
Core for most of the year and, in contrast to 2024 year- As demand for German specials has declined there has been
end (which saw core GC tighten 50bp with little change in a pickup in flows into other countries notably France as
Peripheral), the bias if any has been for core and peripheral clients have looked for RV opportunities in other markets.
GC to cheapen up to 5bp at month-end. Your ultimate resource for all securities lending
This shift is linked to a broader trend of the RV community
Borrowers remain mindful of Basel 3 regulations, and transitioning from a net short to a net long position in and borrowing information
continued demand for collateral upgrade trades was bonds, with client flows gradually shifting over the past
observed, particularly on term. Where borrowers are year and gaining further momentum in recent months. On
entering Repo trades the preference is to do so with the other side of the equation we have seen an increasing Learn about the Key Market Participants
clients who can supply NSFR cash. Borrowers’ preference amount of cash being lent into the market from Eurozone Deep Dive into the Benefits of Securities Lending
continues to favor non-cash with c. 95% European Debt management offices as they look to deploy their
government bond trades against non-cash. excess cash into the market. This has helped to keep a Get your Questions...Answered
lid on how far GC has cheapened so far. Following a year
The Euro repo market experienced a steady upward trend in end in which an anticipated spike in levels never actually Access the Latest Market Data
GC rates during the first half of the year, moving from below materialised there has been a lot of focus on month ends
the deposit facility rate to trading one or two basis points particularly the two quarter ends we have witnessed so far
above it. This tightening occurred amidst a decline in excess this year however both have been benign with no spike in
cash within the Eurosystem, falling from €2.9bn at the start levels. This will help calm nerves as we head into year end
of January to €2.68bn currently & down from €3.1bn a and should put a limit on how high year end will be priced.
year ago. Concurrently, as excess liquidity has declined we Scan to Find Out More
have seen the spread between core and peripheral GC rates