Money market update: happy new year (turn)

Please find attached the latest money market update on the upcoming year turn. To summarize, the turn will be even more uneventful than the 2024/2025 turn.

• ‍The spread between the Dutch T-bill maturing in January with the constant maturity ESTR swap is around zero. When turns were severe in the past, bills maturing past the turn would trade with often excessive premiums this time of the year. Furthermore, we see no rush of money being parked with safe counterparties at (excessively) low levels;
• ‍The lack of a turn-effect is the result of the ECB balance sheet shrinking and the increased profitibality of the Eurozone banking system. Both have boosted leverage ratio of the banking system. Banks therefore have less of an incentive to window-dress leverage ratios higher over the turn, which in the past set in motion a cascade of events that (deeply) depressed euro rates over the turn.
• ‍Furthermore, because of ECB QT and structural government deficits, the available supply of high quality collateral is greater than it has been in the past eight turns;
• ‍Look for for signs of liquidity demand - not rejection - over the turn. A breakdown of MRO/LTRO borrowing per member state will be available early February next year. That will tell us if the usual suspects were looking for liquidity over the turn.