Exclusive Financial Products: The Invisible Market Conditioning Resource Costs
Certain financial products are exclusively reserved for institutional investors, forming part of the invisible market that conditions the cost of resources allocated to economic agents. Among them is the repo market.
Known as REPO in Anglo-Saxon finance, the repo market is a contract that allows any legal entity or UCITS to transfer securities and/or commercial papers to another legal entity or UCITS. The particularity of this contract lies in the irrevocable commitment of the transferor to repurchase the underlying assets and the transferee to return them at a predetermined price and date. It is, therefore, a lending operation for the transferee and a borrowing operation for the transferor, with an interest rate freely set between the two parties. Obviously, the lower the liquidity, the higher the rates.
As of yesterday, November 25, 2024, 12,084 repo transactions have been recorded, compared to 9,589 on the same date last year. The increase has also affected the volume, which has risen from 51,061,569 MTND in 2023 to 62,172,768 MTND this year. The majority of transactions concerned maturities of 8-90 days, representing 75.8% of the total volume. Next come operations with maturities of 1-7 days (15% of the volume) and those exceeding 90 days (9.2% of the volume).
The weighted average rates were, respectively, 8.98%, 8.93%, and 9.56%. For all maturities, rates have increased by more than 100 basis points, a dynamic that shows how economic agents have liquidity needs and are willing to pay a high price for it. This explains the rates that credit institutions are charging their clients.
On the other hand, this trend translates to an increase in the size of the pool of securities that can be used for such operations, particularly with the sustained pace of state bond issuances, which are the best tool for exchanging them for cash on the market.
These figures argue in favor of high rates for the coming months. Even if the benchmark rate decreases, the concrete effect will only be felt after months, as it takes time for prices to adjust. The dinar will remain scarce in bank vaults.
