Schrödinger’s bonds

The fixed income market has been in turmoil in the last few months. With ongoing sovereign wealth crises and downgrades, we look at how the securities lending market has reacted to recent developments. On the whole, we find that the total supply of bonds in lending programs has decreased 9% to around 5.1 trillion dollars in the three months leading up to the start of January (See Chart). Looking on the demand side, we find that there was a 7% fall in loans (See Chart), driving utilization higher. This has in turn helped fuel an increase in income generated by lending programs despite a fall in fees.