###POV. Don't write-off an EGB year-end repo...>

EGBS: ###POV. Don't write-off an EGB year-end repo breakdown?

- Last year, the 3 day turn saw some 'specials' traded -15% or more!

- Traditionally, repo markets go crazy at year-end as banks window-dress balance

sheets. The ICMA studied 2016's and identified 3 reasons for the disclocation:

1) Market Positioning, 2) the ECB APP, with inadequate lending, 3) Regulatory

impacts (NSFR and LCR).

- In a recent speech Coeure claimed that the ECB's cash for collateral programme

had mitigated the shortage of collateral. This stretches the truth when only

E13bln of this facility is currently used (Oct avg). But, in total E56bln of

collateral is now being lent by the eurosystem and already double what was lent

in December 2016. There is still tension in the system.

- Additionally, a canary in the coalmine for 2016 was the 3m EURUSD CCY basis

swap, which has widened substantially since September, indicating a structural

imbalance between banks' EUR and USD holdings is at similar levels to early Dec

2016. If by early December GC repo heads to -1% or more, expect the market place

a premium on any already 'special' bonds.