The Bank of New York (BNY) announced today that it had conducted the first ever tri-party repo trade to be collateralised with Japanese government bonds (JGBs). The cash taker was BNY’s longstanding tri-party partner, Goldman Sachs, and the cash was provided by Fortis Bank. Fuji Bank, part of the Mizuho group, acted as sub-custodian to BNY in the transaction.
The inclusion of JGBs as eligible collateral in the BNY global collateral management programme opens up a potentially enormous market as holders of JGBs look to utilise inventory for securities financing transactions. Estimates by the Japanese Ministry of Finance indicate the current value of outstanding JGBs exceeds $3.2 trillion, making Japanese government debt the second largest bond market in the world. “We anticipate investors will place increasing value on collateral, and this development in The Bank of New York’s programme will open up a vast new source of liquidity by making JGBs available to global collateral managers,” says Olly Benkert of Goldman Sachs International.
Godfried De Vidts, Global Funding Co-ordinator at Fortis Bank in Brussels, added: “With the pending implementation of Basle II, the search for suitable collateral and systems that can handle the daily management in a secured environment is a task for every financial institution,” he says. “Widening the available pool of collateral by adding JGBs to the Bank of New York’s tri-party product is a mile-stone for future developments.”