The European Central Bank has published a working paper on scarcity in the German Bund repo market, finding that Eurosystem bond purchases materially increased repo specialness, while Deutsche Finanzagentur interventions helped but did not fully offset the effect. Using daily transaction data from 2015 to 2024, the paper estimates that a Eurosystem purchase equal to 1% of a bond’s free float lowers its repo rate by about 0.4 basis points, compared with about 0.1 basis points for a Deutsche Finanzagentur purchase. It also finds that Deutsche Finanzagentur repo lending raises repo rates by roughly 0.2 basis points per 1% of outstanding volume, making it more effective than outright sales in easing collateral scarcity. The paper focuses on the stress episodes in 2016-17 and 2022-23, when some Bunds traded up to 60 basis points below the deposit facility rate. It finds that the Deutsche Finanzagentur responded to Eurosystem purchases by increasing repo lending in affected securities within days and then following with outright secondary-market sales, allowing it to relieve shortages without changing the overall level or maturity structure of public debt. A large October 2022 tap, in which the Deutsche Finanzagentur retained sizable issuance amounts in its own portfolio, is presented as evidence that targeted official-sector action can reduce specialness for specific bonds over a sustained period. The paper also concludes that the overall easing effect of public-sector collateral supply was constrained in 2022-23 by a surge in hedge fund demand for specific Bunds, dealer concentration and segmentation in the repo market, and facility designs that transact at market-clearing rates. In that setting, public facilities helped prevent outright shortages and settlement fails, but were not designed to eliminate scarcity premia or provide price support.
European Central Bank2026-07-27
European Central Bank publishes working paper finding Eurosystem Bund purchases depressed repo rates four times more than Deutsche Finanzagentur purchases
The European Central Bank has published a working paper finding that Eurosystem purchases of German government bonds pushed Bund repo rates down much more than Deutsche Finanzagentur purchases, intensifying collateral specialness. Deutsche Finanzagentur repo lending and targeted sales helped ease scarcity, including after a large October 2022 tap, but the paper says the effect was limited by strong hedge fund demand, dealer concentration and repo market segmentation.