Optimising JGBs and cutting risk

28/07/2016

The London branch of a leading Japanese bank needed to optimise its JGBs to raise cash in USD.

Japanese Government Bonds

JGBs are one of the world’s most liquid, and highly rated asset classes. But, they are under-utilised for collateral and balance sheet purposes. At Euroclear we have the right partnerships and practices in place to use JGBs for financing, repo and other collateral management requirements.

Challenge

Optimise JGBs as collateral to raise USD cash or see its JPY-denominated collateral assets under-utilised.

Challenges associated to this activity were:

settlement risk – differences in Japanese securities and US cash settlement cycles across timezones
process and platform differences

Solution

Use Euroclear’s multi-currency Delivery-Versus-Payment (DVP) settlement capability to mitigate its JGB/USD cross-currency repo settlement risk.

Leverage our global infrastructure and local connections to settle JGBs against USD on a DVP basis.

Use Euroclear to effect internal settlement using an omnibus account.

Benefits

The Japanese bank mitigated its settlement risk when optimising JGBs to raise USD cash. To do this it had to find the best place to settle JGB cross-currency repo transactions.

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Corporate news

JGBs are one of the world’s most liquid, and highly rated asset classes but are they under-utilised for collateral and balance sheet purposes?