Euro money market study 2024

The 2024 Euro money market study provides a comprehensive analysis of euro money markets using trade data from the 45 largest euro area banks. It examines five key segments of the euro money markets: (i) secured transactions – repurchase agreements (repos) and reverse repos, (ii) unsecured cash transactions, (iii) short-term securities issuance, (iv) foreign exchange swaps, and (v) overnight index swaps. The study describes developments in these segments between January 2023 and December 2024 based on daily money market trades reported to the European Central Bank via the Eurosystem’s money market statistical reporting (MMSR) dataset.

This study is structured into two main parts. Part 1 analyses key developments, describing in detail the evolution of the euro money markets over the past two years and explaining the reasons behind these changes. Part 2 uses a series of charts to explore developments in each money market segment. The charts show various dimensions of the market such as volumes, prices, counterparties and maturities. Looking ahead, the 2026 Euro money market study will include trades executed by 69 rather than 45 banks, thus broadening the scope of the analysis. This will reflect the increase in the number of MMSR reporting agents.

The first part of the study examines key developments in euro money markets in 2023 and 2024. It describes the main features and changes observed (Section 1.1) and provides a comprehensive analysis of the factors driving them (Section 1.2). It also offers insights into (i) the factors behind the as-yet unexploited opportunity for arbitrage between unsecured and secured short-term rates (Box 1), and (ii) the impact of the 2023 global banking stress on the markets (Box 2).

1.1 Main features and changes

Increased market activity. Daily aggregate turnover rose by 38% from €1.3 trillion in 2022 to €1.8 trillion in 2024. Growth rates varied: secured transactions rose by 41% and unsecured trades by 28%, while short-term securities (STS) fell by 32% and foreign exchange (FX) swaps by 12%. Overnight index swaps (OIS) saw the highest growth at 101%, driven by expectations of interest rate changes. The fall in STS and FX swap trades was due to a shift towards slightly longer maturities, as outstanding amounts remained stable. Secured trades dominated the euro money market, making up more than half of total money market turnover (Chart 1).

Market turnover remained concentrated in very short-term tenors. While the euro money market covers trading in maturities up to one year, tenors longer than three months are more usual in the STS and OIS segments. In total, 78% of OIS involved forward contracts (Chart 2).

Dominance of non-bank entities. Interbank activity remained modest, ranging from 2% to 26% of the total turnover across segments. It rose from 13% to 17% in the unsecured segment, while difficult to assess in segments with central clearing, as MMSR data only cover trades involving the reporting bank. CCPs handle 70% of the secured turnover and most of the OIS. Non-bank entities are key counterparty sectors in all segments, with public institutions showing notable growth in the secured segment during 2024 (Chart 3).

Rate convergence towards the deposit facility rate (DFR). The spread between euro money market rates and the DFR narrowed, with a more pronounced effect on secured than unsecured rates. The rise in secured rates is mainly a result of increased net collateral supply and shifts in interest rate expectations, prompting market participants to take short positions in the period 2022-2023 and then move to long positions in 2024. The impact on short-term money markets of less ample reserves and adjustments to the ECB operational framework has been limited so far (Chart 4).

Emergence of a persistent positive spread between secured and unsecured overnight rates. The unsecured euro short-term rate (€STR) showed low sensitivity to reductions in excess liquidity, with its negative spread to the DFR remaining more persistent than historical data suggested (Chart 5, panel a). Meanwhile, repo rates based on general collateral (GC) transactions, driven by the search for cash and representing about 12% of repo turnover, narrowed their spread in line with the historical trends (Chart 5, panel b). The divergence in rates between the secured and unsecured segments has led to potential arbitrage opportunities, yet these remained largely unexploited at the end of 2024. The structural impediments to arbitrage are explained in Box 1.

1.2 Main drivers of money market dynamics

The key factors driving money market dynamics were declining reserves, collateral shifts and policy adjustments. In the period 2023-2024, three primary influences shaped money market trends: (i) a decrease in excess reserves; (ii) changes in the supply and demand dynamics of collateral; and (iii) modifications to policy rates, remuneration terms and the operational framework. In both the secured and unsecured segments, interest rates remained closer to the DFR than they did in the period 2021-2022. In the FX swap segment, the breach of covered interest parity (CIP) for EUR/USD converged towards zero. This section delves into the three major factors that drove these developments.

A. The decline in excess liquidity

The ECB gradually reduced excess liquidity. The ECB implemented a gradual decrease in excess liquidity through a significant reduction of over one-third in the Eurosystem balance sheet from its November 2022 peak. The reduction process was gradual, facilitated by the staggered maturities of TLTROs and the option for early repayments. In addition, the ECB adopted a phased approach to managing the exit from asset purchase programmes. Initially, the Eurosystem ceased net purchases and then transitioned to partial reinvestments, before eventually halting reinvestments entirely for both the asset purchase programme (APP) and the pandemic emergency purchase programme (PEPP) (Chart 7).

Euro area banks adapted to an environment of declining excess liquidity by making strategic adjustments. The ECB’s deliberate gradualism in quantitative tightening allowed banks to effectively prepare for it. The full repayment of TLTROs resulted in a decrease in liquidity coverage ratio (LCR) levels, with the aggregate LCR stabilising at 160%, well above the regulatory minimum of 100%. As banks approached their internal targets, they obtained high-quality liquid assets (HQLA) from market sources and reduced their expected liquidity outflows. (Chart 8).

Banks prioritised reserves with regulatory value over cash. As the Eurosystem's balance sheet shrank, banks shifted from focusing on traditional liquidity management to acquiring reserves with regulatory significance by increasing term repo activity in maturities over six months to support their net stable funding ratio. They also engaged in interbank money market transactions to generate HQLA for the LCR, such as borrowing against self-issued covered bonds. This marks a behavioural shift in money markets compared with the pre-Basel III era (Chart 9, panel a). The regulatory environment also led banks to favour secured over unsecured transactions for interbank liquidity redistribution, especially on a cross-border basis. Secured borrowing reduces leverage ratio costs, especially when cleared through CCPs for balance sheet netting purposes, whereas unsecured borrowing often incurs higher costs, leading to lower rates. The LCR further discourages unsecured borrowing by requiring HQLA for 30-day cash outflows, while secured borrowing can stabilise or enhance the LCR, depending on collateral quality (Chart 9, panel b).

B. Shifts in collateral supply and demand dynamics

The transition from collateral scarcity to collateral abundance, alongside changes in monetary policy, contributed significantly to the normalisation of repo rates. In the period 2023-2024, repo rates across various collateral jurisdictions converged and became more closely aligned with the DFR. This shift was driven by a combination of increased collateral supply and decreased collateral demand, as discussed below.^[1]

The increase in collateral supply, driven by larger euro area sovereign bond issuance and the Eurosystem’s reduced market footprint, eliminated the prevalence of special repo transactions at low rates. The shift from collateral scarcity to abundance was mainly due to increased net bond issuance by euro area sovereigns. As the ECB moved from quantitative easing to quantitative tightening, the supply of collateral grew further as the Eurosystem reduced its market footprint by gradually unwinding its monetary policy portfolios, and collateral mobilised with the Eurosystem in TLTROs was returned. Together, these factors contributed nearly €1 trillion in additional government bonds to the market (Chart 10, panel a). During the period 2015-2022, the ECB's extensive asset purchases had reduced collateral availability, leading to increased demand for specific securities repo transactions and a sharp decline in repo rates, with over 70% of repos trading at least 30 basis points below the DFR at their peak (see dark blue, red and yellow areas in Chart 10, panel b). However, in 2023, as the ECB moved to quantitative tightening, improved collateral availability prevented repo rates from deviating significantly from the DFR.

Reduced collateral demand, driven by shifts in monetary policy and a move from short to long positions in the bond market, also eased the downward pressure on repo rates. In 2022, high inflation led market participants to anticipate rising interest rates. This expectation prompted them to take short positions in the bond market, where they sold bonds, they did not own, expecting to buy them back at lower prices as rates increased. To facilitate these short positions, participants borrowed securities in the repo market, and the increased demand for borrowing initially pushed repo rates down. Conversely, as expectations shifted towards lower interest rates in 2024, participants switched to long positions. Anticipating bond price appreciation as rates fell, they began purchasing bonds. To finance these purchases, they used the repo market to obtain the necessary liquidity. This activity increased demand for financing in the repo market, easing the downward pressure on repo rates and aligning them more closely with the DFR and broader monetary policy.

The abundance of collateral brought about a convergence in repo rates, but investor demand remained robust enough to absorb additional issuance. Since 2023, the increased supply of collateral, combined with reduced demand due to changing market strategies, has led to a transition in the repo market from a state of collateral scarcity to one of abundance. This shift allowed repo rates to converge towards the DFR in the review period, normalising from the asset scarcity of 2021, which became severe in 2022. The market’s balance was evident in the reduced scarcity premium for transactions involving high-quality collateral, such as German government bonds, signalling more stable conditions (Chart 11, panel a). In addition, there was a noticeable decrease in the volume of special repo trades executed below the DFR and an increase in those executed above it (Chart 11, panel b). Repo rates exceeding the DFR were primarily observed in primary dealer transactions, which serve as hubs for liquidity and securities distribution. This situation is likely to have tested the intermediation capacity of dealers amid increased sovereign debt issuance. However, the strong appetite for government bonds at primary market issuances indicates that investor demand benefited from the return to positive rates.

C. ECB policy adjustments

The transmission of ECB monetary policy rate changes to the money markets was effective. Between 2022 and 2024, the ECB adjusted its policy rates multiple times, leading to a cumulative increase of 450 basis points from July 2022 to September 2023, followed by a cumulative decrease of 100 basis points by the end of 2024. These changes were smoothly transmitted through the interest rate channel, making a clear impact on both the overnight unsecured (€STR) and secured money market rates and thus demonstrating the effectiveness of the ECB's policy measures. Challenges in passing through to secured rates, which emerged in 2022 due to collateral scarcity in the repo market, were resolved as the ECB's balance sheet reduction in the period 2023-2024, along with increased bond issuance, alleviated collateral scarcity and improved repo market functioning. As the market adjusted, the steady rise in secured money market rates signalled a healthier, more resilient repo market, better positioned to support monetary policy transmission (Chart 12).

The ECB’s 2023 policy adjustments on reserve and deposit remuneration reshaped banks’ borrowing behaviour and money market dynamics. In February 2023, the Governing Council decided that government deposits placed with the Eurosystem could gradually return to the market, as repo market conditions had improved since September 2022.^[2] Consequently, the remuneration ceiling for these deposits was lowered to the €STR minus 20 basis points as of 1 May 2023. Additionally, the decision in September 2023 to stop remunerating minimum reserves reduced incentives for unsecured borrowing at the end of the month, prompting banks to optimise their reserve bases. Some banks responded either by repricing unsecured borrowing trades downwards at month-end or by shifting them to secured markets or FX swaps, which are exempt from minimum reserve requirements. While these shifts towards the secured segment pointed to optimisation behaviour, they did not significantly affect repo rates, as these flows were small and easily absorbed. However, the unsecured segment experienced more noticeable effects, with visible declines in the €STR around month-end reporting dates (See Section 2.2.4).

In March 2024, the ECB announced the outcome of its operational framework review.^[3] A key element included maintaining an elastic provision of liquidity through a broad mix of instruments, with main refinancing operations (MROs) and three-month longer-term refinancing operations (LTROs) continuing to be conducted via fixed-rate tender procedures with full allotment. Effective as of 18 September 2024, the spread between the MRO and the DFR was reduced from 50 to 15 basis points. This narrower spread should incentivise bidding in the weekly operations, making it likely that short-term money market rates will remain close to the DFR and limiting the potential volatility in these rates. The spread between the MRO and the marginal lending facility (MLF) rate remained unchanged at 25 basis points. New structural longer-term refinancing operations and a securities portfolio will be introduced as the balance sheet begins to grow durably again. The reserve ratio and remuneration of minimum reserves remained unchanged.

Thanks to ample Eurosystem excess liquidity and favourable market conditions for bank funding, the reduction in the MRO rate spread to 15 basis points did not affect money market rates or volumes. Less than 1% of the peak outstanding in TLTROs was rolled over into MROs or LTROs, as banks continued to secure short-term funding under more favourable market conditions, with most comparable market funding sources remaining well below the MRO rate level. The ECB also committed to closely monitoring the evolution of liquidity, with a review of key parameters of the operational framework scheduled for 2026. In the meantime, the ECB remains ready to make earlier adjustments if needed (Chart 13).

The dynamics of the FX swap market highlighted the significant impact of policy rate changes and liquidity conditions on currency interactions. During the review period, the breach of covered interest parity (CIP)^[4] declined, approaching zero for shorter maturities (Chart 14, panel a). This trend was influenced by the convergence of policy rate spreads and by the ample liquidity conditions in both currencies. In the period 2023-2024, the policy rate divergence decreased from 237.5 to 137.5 basis points. In terms of liquidity, the ECB reduced its balance sheet to almost pre-COVID-19 levels, while the Federal Reserve System’s quantitative tightening was slower. This divergence in the pace of quantitative tightening led to a relative abundance of US dollar reserves compared with euros, intensifying the tightening pressure on the FX swap basis (Chart 14, panel b).^[5]

The second part of this study uses visual data to explore developments by money market segment. A series of charts illustrates the evolution of each euro money market segment across various dimensions including volume, prices, counterparties and maturities. These charts have been created in a harmonised way to make it easier to compare between segments.

2.1 The secured segment

2.1.1 Volumes

The secured segment, with daily turnover averaging €997 billion in the fourth quarter of 2024, grew by 41% over two years and makes up 30% of the total outstanding money market volume. Until 2022, repo trading was mainly collateral-driven, but since 2023 cash-driven repos have gained importance as government bonds used previously for “special” trades have become more available.

2.1.2 Rates

Repo rates converged with the DFR as collateral scarcity eased. The increase in collateral supply, driven by larger euro area sovereign bond issuance and the Eurosystem’s reduced market footprint, eliminated the prevalence of special repo transactions at low rates. Reduced collateral demand, driven by shifts in monetary policy and a move from short to long positions in the bond market, also eased the downward pressure on repo rates. The abundance of collateral led repo rates to converge, ensuring smooth ECB policy transmission to the repo segment.

2.1.3 Counterparties

Two-thirds of secured transactions remained centrally cleared, while the rest took place bilaterally in direct trading or through brokers. In cash lending, bilateral deals mainly involved non-banks, while cash borrowing was evenly spread among banks, hedge funds, investment funds and public institutions, with notable growth from the latter. French entities continue to lead in lending and borrowing. The top ten and 150 entities make up 73% and 95% of the euro area repo market respectively.

2.1.4 Maturities and calendar effects

In total, 87% of repo turnover occurs in the one-day maturity bucket. Since 2017, 35% of the outstanding amount has been in transactions with very short maturities, 30% in medium maturities and 35% in longer maturities. Regulatory reporting obligations lead to drops in volumes and rates at quarter-ends. In 2021 and 2022, rates fell by more than 200 basis points at year-end, owing to severe collateral scarcity and high excess liquidity. However, since then, easing collateral scarcity and declining excess liquidity have substantially reduced repo volatility on reporting dates, resulting in more benign conditions throughout 2023 and 2024.

2.2 The unsecured cash segment

2.2.1 Volumes

Averaging daily turnover of €233 billion in the fourth quarter of 2024, the segment grew 28% and makes up 9% of total stock. Bank borrowing from entities without deposit facility access was the main activity. Unsecured trades eligible for the €STR calculation fell from 40% to 30%. Overnight trades not eligible surpassed 50%.

2.2.2 Rates

Unsecured rates stayed persistently below the DFR, showing low sensitivity to declining excess liquidity. The spread between the €STR and the DFR held close to 9 basis points. The interest rate on call accounts decoupled from the €STR and stood significantly further below the DFR. In addition, the one-day lending rate was higher by 40 basis points and 25 basis points than the borrowing rates in September 2023 and December 2024 respectively. The pass-through of the ECB policy rate changes to the €STR was smooth throughout the hiking and cutting cycles.

2.2.3 Counterparties

Borrowing activity rose across all counterparty sectors, whereas the volume of lending to banks declined. On the borrowing front, deposits and call accounts from non-financial corporations remained the most prominent instruments, with interbank borrowing volumes ranking fourth. German entities dominated both trading directions, while French participation leaned towards borrowing. The unsecured segment exhibited the lowest concentration, with top ten entities accounting for 12% of the market and the top 150 for 48%.

2.2.4 Maturities and calendar effects

86% of unsecured turnover is conducted in the overnight maturity bucket. Since 2017, the share of outstanding transactions with maturities from one week to three months has increased significantly from 40% to 60%. The unsecured segment shows seasonal fluctuations at quarter-end and year-end due to regulatory factors. Although borrowing volumes and rates typically decrease on reporting dates, the rate decline at the end of 2023 and 2024 was more contained than in 2021 and 2022.

2.3 The short-term securities segment

2.3.1 Volumes

Short-term securities (STS) issuance in the primary market averaged €8 billion daily in the fourth quarter of 2024, accounting for 8% of the total outstanding money market volume. In the period 2023-2024, flows declined while activity shifted to longer maturities, resulting in stable outstanding amounts. STS include ECP, NEU CP and STEP. Issuance volumes in euro increased from 46% to 60%.

2.3.2 Rates

STS rates for the shortest maturities issued by banks remained stable below the DFR, in line with unsecured money market rates. However, rates for other issuers were highly volatile. Bank-issued securities generally had lower rates for both short-term and long-term maturities. The issuer’s rating also significantly affected pricing, especially for maturities beyond one week. ECB rate changes were effectively passed through to issuances with very short maturities.

2.3.3 Counterparties

In the primary market, banks continued to be the main issuers of STS, with money market funds comprising most of the investor base. French entities led in both issuance and investment activities. Dutch and German banks also played significant roles in issuance, while Irish and Luxembourgish MMFs were prominent securities holders. The STS segment ranked in the middle compared to the other money market segments of other segments in terms of concentration, with the top ten entities accounting for slightly more than 40% of the market, and the top 150 accounting for 89%.

2.3.4 Maturities and calendar effects

STS activity remained varied in terms of maturity, with a rise in short-term tenors over the last two years, although most outstanding amounts still had maturities over three months. The usual issuance pattern – peaking in the first and second quarters, then declining in the third quarter – was disrupted in the period 2020-2021 by TLTRO III offering a favourable three-year funding rate. After this special rate ended in June 2022, the traditional issuance pattern re-emerged. Issuances rose post-TLTRO III, fell in the second half of 2023, and increased sharply in 2024, marking a return to typical seasonal trends.

2.4 The foreign exchange swap segment

2.4.1 Volumes

FX swaps, averaging daily turnover of €286 billion in the fourth quarter of 2024, remained the biggest segment, with 54% of the total outstanding volume. Turnover fell over the two-year review period with a shift to longer maturities. FX swap trades involving the US dollar made up about 80% of the daily volume.

2.4.2 Rates

Over the past two years, the premium for borrowing US dollars against euro in FX swaps has declined. When the cost of borrowing US dollars through FX swaps exceeds the funding costs in the US domestic money market, it indicates a US dollar supply shortage offshore. Recently, implied US dollar borrowing costs from FX swaps have approached the secured overnight financing rate (SOFR) and have rarely surpassed the backstop pricing of the Eurosystem’s US dollar operations (Box 2 and Chart 4.2.2). The reduction in the US dollar premium has been supported by changing policy rate expectations and a narrowing interest rate differential between the United States and the euro area.

2.4.3 Counterparties

Interbank transactions dominate FX swap market activity. In transactions where MMSR reporting banks provide US dollars, 69% of the volume is traded with other banks. Hedge funds and investment funds have slightly increased their activity, establishing themselves as the second largest counterparty group. Transactions with other financial corporations, including pension funds and insurance companies, remained steady in third place. French entities, followed by German entities, are the most active in the FX swap segment. The top ten and 150 entities accounted for 32% and 81% of the FX swap transaction volumes respectively.

2.4.4 Maturities and calendar effects

In total, 62% of FX swap turnover occurs in the one-day maturity bucket, although there has been a shift towards slightly longer maturities over the past two years. Since 2017, outstanding amounts have been distributed as 10% in very short maturities, 65% in medium maturities and 25% in longer maturities. While quarter-end effects are limited, year-end US dollar borrowing can become expensive, as seen in 2020. However, in 2023 and 2024, year-end conditions were milder than in the period 2021-2022, even with the large volume traded in the last five business days.

2.5 Overnight index swaps

2.5.1 Volumes

The OIS segment grew by 101% over two years, ranking third among money market derivatives with daily turnover of €228 billion. The demand for interest rate swaps, forward rate agreements and OIS derivatives surged owing to expectations of rate changes in 2022, 2023 and 2024. Banks use OIS for managing rate exposure and speculating on future policy rates, with 60% of forward activity linked to the Eurosystem reserve maintenance periods.

2.5.2 Rates

OIS market participants initially underestimated the ECB’s rate hikes in mid-2022 but accurately predicted the peak in late 2023, as well as the 2024 cutting cycle. Policy signals from the Governing Council in October 2023, December 2023 and July 2024 triggered strong market reactions. Over shorter horizons, both the ECB Survey of Monetary Analysts (SMA) and OIS pricing reliably anticipated rate changes, although OIS rates occasionally diverged from SMA forecasts over longer horizons. The relationship between inflation swaps and OIS rates has returned to pre-COVID-19 levels.

2.5.3 Counterparties

Most OIS transactions were centrally cleared, in compliance with the requirements under the European Market Infrastructure Regulation (EMIR)^[7]. One non-euro area CCP cleared most trades, while euro area CCPs accounted for 6% of the total. The segment is highly concentrated, with the top ten and 150 making up 95% and 99.6% of the market respectively. Euro area banks were more active in forward than in spot positions, implying more focus on speculation than on hedging.

2.5.4 Maturities and calendar effects

As much as 78% of OIS turnover involved forward contracts. In 2024, 60% of forward contracts aligned with euro area reserve maintenance periods and ECB Governing Council meeting dates, enabling hedging against policy rate changes. The volume of OIS trading was sensitive to signals about future rate paths from ECB press conferences and inflation flash estimates, resulting in higher trading volumes on those dates compared with the average. Contracts with original maturities over one year accounted for 51% and 49% of the outstanding amounts in spot and forward contracts respectively.

Appendix

Money market statistical reporting

The money market statistical reporting (MMSR) dataset gathers daily information on activity in the euro money markets. MMSR data are collected on all individual transactions in euro below one year conducted by selected banks in the euro area, reported daily by 07:00 CET since 1 April 2016. The legal framework for MMSR is laid down in Regulation (EU) No 1333/2014^[8].

The MMSR reporting agents cover the largest euro area banks. Initially, 53 banks were reporting agents, but over time, this number had fallen to 46 because of mergers and administrative changes. On 1 July 2024, 24 new banks were added and one removed. Data from these newly added banks are excluded from this 2024 edition of the Euro money market study as their reporting only covers the last quarter of the review period (2023-2024). Reporting agents are listed in Figure A.^[9]

MMSR data cover four segments of the euro money market: secured, unsecured, foreign exchange swaps and overnight index swaps. Both legs of the transactions are reported, including lending and borrowing, selling and buying of foreign currency, and paying and receiving fixed interest rates. Data exclude intragroup transactions and cover wholesale trades with non-retail counterparties, such as financial corporations, non-financial corporations and governments.^[10] Table 1 lists the main characteristics of the transactions reported for each segment.

Key transaction attributes reported include trade date, turnover, pricing, maturity structure and counterparty. For secured transactions, the collateral security’s ISIN is also provided. The dataset has evolved, with two notable changes taking place in March 2019. First, the legal entity identifier (LEI) reporting requirement was extended to all counterparties. Second, financial auxiliaries and captive institutions were included among eligible counterparties, enhancing the accuracy and completeness of data. MMSR reflects new trades and the renegotiation of these trades, but does not include life-cycle events such as early cancellations. Data cover wholesale money market transactions by euro area reporting agents, including their branches in the European Union, the European Free Trade Area and the United Kingdom, with any global counterparty. Transactions between reporting agents are reported by both parties. Table 2 provides a summary of the main information available in the MMSR data.