Message from Colin McKechnie

Hello and welcome to the summer 2012 installment of the Securities Lending Newsletter. We begin with an update from the Equities Desk. The second quarter saw the optimism of Q1 dwindle, as the persistant debt crisis in Europe hindered global growth. Worries over Spain’s banking sector and fears of contagion in southern Europe, slower economic growth in the U.S. and China, and elections throughout major European economies, led to investor uncertainty and risk aversion. These concerns fueled borrowing demand, especially for directional shorting. M&A activity continued to be impacted and reached its lowest level in three years. The European dividend season, which peaked in May, saw both supply and demand affected by additional tax harmonization across many European markets.

In our review from the Fixed Income Desk, we note that borrowing demand for U.S. Treasuries remained low as a result of the sustained high levels of issuance and liquidity while the trend of higher rebate rates, largely impacted by the Federal Reserve’s Operation Twist program, continued throughout the quarter. Corporate bond balances grew in the second quarter, with new issuance helping to drive this trend. A significant development internationally was the EU’s agreement on several key financial stability mechanisms, designed to aid member economies. More recently, on July 5, the ECB lowered the interest rate on overnight deposits to 0% with the hope of spurring bank lending. We can only postulate what the outcome of this move will be as this is uncharted territory and the full consequences for the repo market are unknown at this time.

Thank you for your business, confidence and trust. We look forward to continuing to provide you with industry leading, end-to-end solutions that are customized to your program’s risk profile.

Regards,
Colin McKechnie
Global Business Executive, Trading Services