11 October 2023

ICMA Quarterly Report for the Fourth Quarter of 2023

Topics: Resilience the watchword; Synthetic US dollar LIBOR: the remaining task in the bond market; Market integrity and greenwashing risks in sustainable finance; Shortening the settlement cycle to T+1; European secondary bond market data report H1 2023; FinTech and digitalisation

Bryan Pascoe: Resilience the watchword

Entering the final quarter of the year we can reflect on a
relatively stable post-summer period for bond markets with
healthy levels of new issuance and reasonable performance
across most asset classes. Of late, however, vulnerabilities
have again become more evident. As government bond yields
across most major jurisdictions have crept towards multiyear
highs and central bank rates are broadly considered to
be at or close to their terminal rates, the risk of either higher
and persistent inflation on the one hand or recession on
the other remain finely balanced, underpinning the broadly
defensive market tone and a focus on guarding against any
form of complacency emanating from market participants
and regulatory authorities alike.
Rightly so, market resilience continues to be broadly
scrutinised against the backdrop of concerns centred
particularly around the combination of leverage,
concentration and associated margin requirements in the
less regulated sectors. This was a central theme to the
numerous discussions we held recently around the Eurofi
financial regulation conference, and the regulatory agenda
and priorities across all jurisdictions in which we operate
certainly reflect that. Trade associations have a critical role
to play in facilitating market stability and best outcomes,
and that is why our current work in areas such as assessing
risks and building liquidity across the entire bond and repo
ecosystem (via our Bond Market Liquidity Taskforce work),
internationalising best practice in the repo markets (through
the Global Repo and Collateral Forum), using our convening
power in the digitalisation space to drive harmonisation and
consistency of standards (Common Domain Model, Bond
Data Taxonomy and GMRA Clause Library) and playing a
central role in the discussions around settlement efficiency
and accelerated settlement, is so important. On the last point
the implications of the move to T+1 settlement in the US
(alongside Canada and Mexico) in May 2024 are far-reaching
and impact all areas of market activity. As the EU, UK and
other global authorities assess the impact on their own
markets and how (or when) to follow suit, it is essential that
a measured approach is taken to ensure all of the issues,
risks and opportunities are fully considered....

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