Moody’s says new euro repo indices positive for managed funds

Plans announced by MTS, the London Stock Exchange owned business facilitating electronic market trading market, to launch a series of euro denominated repurchase agreement indices should be ‘credit postive’ for investors in managed funds, Moody’s says.

In a report titled Managed Funds: Planned European Transaction-Based Repo Index Is Credit Positive, the rating agency said the indices will be based on actual transaction prices from electronic trading platforms and cleared through central clearing houses, rather than indicative quotes.

Soo Shin-Kobberstad, Moody’s vice president and senior analyst, said: “The development of the indices is credit positive for investors in managed funds, including money market and bond funds. The advantages are that a transaction-based repo market index would enhance an investor’s ability to evaluate the relative credit risks and pricing trade-off for a repo counterparty given a standard, pre-defined set of underlying collateral.”

Moody’s said that transaction based repo indices would enable investors to (1) better compare individual bilateral counterparties’ secured borrowing rates to a market-based index that has a well-defined standard set of collateral; (2) improve the differentiation between the secured cost of funding in each of the main euro area markets; and (3) improve the mark to market of instruments that reset their coupons based on reference repo rates.

The indices, developed together with ICAP Group Holdings, are expected to be launched in Q4 2012 and include a euro-wide general collateral repo index and an index for each of the sovereign bond markets of Germany, France, Italy, Spain, Austria, Netherlands, Belgium and Finland.


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