On Wednesday, 26 April, the European Central Bank (ECB) published its Euro Money Market Study 2022, which details developments in this market between January 2021 and December 2022. One of the main indications from the study is the effective transmission of rate hikes decided by the Governing Council to this market, particularly to rates in the unsecured segment of money [market] transactions.
In particular, the study looked at the consecutive increases in the deposit facility rate (DFR) during the period studied. The DFR had moved out of the negative territory where it had been since June 2014. It was still at −0.5% in 2021, at the beginning of the period studied, and has been since 18 September 2019; it reached 2.0% in December 2022.
The study highlights that the DFR increases have been rapidly and almost completely transmitted to the unsecured segment of the market: within 2 days of the increases, overnight unsecured rates reflected 99% of the DFR increases.
The study also includes an observation of the dynamics of OIS rates (OIS referring to very short-term indexed swaps) in this context. However, it indicates that transmission has been less uniform and has not been as rapid for the secured segment.
More generally, the study points out that, for the period in question, the aggregate daily turnover in the euro money market increased 23%, growing from €1 trillion at the end of 2020 to €1.3 trillion at the end of 2022. Activity increased in the five money market segments that were studied: secured, unsecured cash, short-term securities, foreign exchange swaps, and overnight index swaps.
The study also indicates that the secured segment remained the largest segment of the euro money market. In addition, non-bank financial intermediaries (‘non-banks’) represent a growing share of the market.
Link to the study: https://aeur.eu/f/6lg (Original version in French by Émilie Vanderhulst)