Simon Hesse
- 27 July 2026
- WORKING PAPER SERIES - No. 3259Details
- Abstract
- Elevated repo rate specialness for German government bonds in 2016–17, and particularly in 2022-23, has often been linked to the absorption of these securities by the ECB’s asset purchase programmes. We provide the first evidence on how the debt management office mitigates these effects by jointly analyzing daily secondary-market trades and repo operations of the Deutsche Finanzagentur (DFA) alongside Eurosystem transactions in Bunds from 2015–2024. We find two points: first, that Eurosystem purchases depress repo rates about four times more than DFA purchases (0.4 bp vs 0.1 bp per 1% of free float), while DFA repo lending raises repo rates by roughly 0.2 bp per 1% of outstanding volume. Our evidence suggests that DFA interventions helped mitigate scarcity-induced specialness. Second, with elevated hedge fund demand for bonds, the overall alleviating impact was constrained by segmentation in the repo market and by the design of the facilities themselves, which aimed to prevent collateral shortages and fails-to-deliver rather than to provide price support.
- JEL Code
- E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
H63 : Public Economics→National Budget, Deficit, and Debt→Debt, Debt Management, Sovereign Debt